Aurinia Pharmaceuticals Inc.'s (NASDAQ:AUPH) Low P/S No Reason For Excitement

Aurinia Pharmaceuticals Inc.'s (NASDAQ:AUPH) price-to-sales (or "P/S") ratio of 9.7x might make it look like a buy right now compared to the Biotechs industry in the United States, where around half of the companies have P/S ratios above 13x and even P/S above 61x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Aurinia Pharmaceuticals

How Aurinia Pharmaceuticals Has Been Performing

With revenue growth that's superior to most other companies of late, Aurinia Pharmaceuticals has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Aurinia Pharmaceuticals will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Aurinia Pharmaceuticals' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 121% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 27% each year over the next three years. With the industry predicted to deliver 101% growth per year, the company is positioned for a weaker revenue result.

With this information, we can see why Aurinia Pharmaceuticals is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Aurinia Pharmaceuticals' P/S

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As expected, our analysis of Aurinia Pharmaceuticals' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Aurinia Pharmaceuticals with six simple checks on some of these key factors.

If these risks are making you reconsider your opinion on Aurinia Pharmaceuticals, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.