A Piece Of The Puzzle Missing From Avadel Pharmaceuticals plc's (NASDAQ:AVDL) 26% Share Price Climb

Avadel Pharmaceuticals plc (NASDAQ:AVDL) shareholders have had their patience rewarded with a 26% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 32% in the last twelve months.

Although its price has surged higher, it's still not a stretch to say that Avadel Pharmaceuticals' price-to-sales (or "P/S") ratio of 5.5x right now seems quite "middle-of-the-road" compared to the Pharmaceuticals industry in the United States, where the median P/S ratio is around 5.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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Check out our latest analysis for Avadel Pharmaceuticals

What Does Avadel Pharmaceuticals' Recent Performance Look Like?

Avadel Pharmaceuticals certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Avadel Pharmaceuticals.

Is There Some Revenue Growth Forecasted For Avadel Pharmaceuticals?

In order to justify its P/S ratio, Avadel Pharmaceuticals would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an explosive gain to the company's top line. Still, revenue has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 29% per year as estimated by the eight analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 19% per year, which is noticeably less attractive.

In light of this, it's curious that Avadel Pharmaceuticals' P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

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

Avadel Pharmaceuticals' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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 Avadel Pharmaceuticals currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Avadel Pharmaceuticals with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Avadel 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.