Improved Revenues Required Before Aurinia Pharmaceuticals Inc. (NASDAQ:AUPH) Stock's 27% Jump Looks Justified

Aurinia Pharmaceuticals Inc. (NASDAQ:AUPH) shareholders have had their patience rewarded with a 27% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 76%.

Although its price has surged higher, Aurinia Pharmaceuticals may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 7.2x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 10.7x and even P/S higher than 91x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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See our latest analysis for Aurinia Pharmaceuticals

What Does Aurinia Pharmaceuticals' P/S Mean For Shareholders?

Recent times haven't been great for Aurinia Pharmaceuticals as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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Is There Any Revenue Growth Forecasted For Aurinia Pharmaceuticals?

Aurinia Pharmaceuticals' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 21% last year. The strong recent performance means it was also able to grow revenue by 106% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 16% per year as estimated by the six analysts watching the company. That's shaping up to be materially lower than the 122% per year growth forecast for the broader industry.

With this in consideration, its clear as to why Aurinia Pharmaceuticals' P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Aurinia Pharmaceuticals' P/S?

The latest share price surge wasn't enough to lift Aurinia Pharmaceuticals' P/S close to the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Aurinia Pharmaceuticals maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. 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.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Aurinia Pharmaceuticals with six simple checks on some of these key factors.

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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.