Market Participants Recognise Avadel Pharmaceuticals plc's (NASDAQ:AVDL) Revenues Pushing Shares 28% Higher

Avadel Pharmaceuticals plc (NASDAQ:AVDL) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 54% share price drop in the last twelve months.

Following the firm bounce in price, Avadel Pharmaceuticals may be sending sell signals at present with a price-to-sales (or "P/S") ratio of 5x, when you consider almost half of the companies in the Pharmaceuticals industry in the United States have P/S ratios under 3.7x and even P/S lower than 1.3x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

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

Recent times have been advantageous for Avadel Pharmaceuticals as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

Keen to find out how analysts think Avadel Pharmaceuticals' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Avadel Pharmaceuticals' Revenue Growth Trending?

Avadel Pharmaceuticals' P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. 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.

Looking ahead now, revenue is anticipated to climb by 33% per year during the coming three years according to the ten analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 19% each year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Avadel Pharmaceuticals' P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Avadel Pharmaceuticals' P/S is on the rise since its shares have risen strongly. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Avadel Pharmaceuticals' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Many other vital risk factors can be found on the company's balance sheet. 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 you're unsure about the strength of Avadel Pharmaceuticals' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.