Eton Pharmaceuticals, Inc.'s (NASDAQ:ETON) 45% Jump Shows Its Popularity With Investors

Despite an already strong run, Eton Pharmaceuticals, Inc. (NASDAQ:ETON) shares have been powering on, with a gain of 45% in the last thirty days. The last month tops off a massive increase of 294% in the last year.

Since its price has surged higher, given around half the companies in the United States' Pharmaceuticals industry have price-to-sales ratios (or "P/S") below 2.8x, you may consider Eton Pharmaceuticals as a stock to avoid entirely with its 12.9x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Eton Pharmaceuticals

How Has Eton Pharmaceuticals Performed Recently?

Recent times haven't been great for Eton Pharmaceuticals as its revenue has been rising slower than most other companies. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For Eton Pharmaceuticals?

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

If we review the last year of revenue growth, the company posted a worthy increase of 5.6%. The latest three year period has also seen an excellent 119% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 73% per year as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 23% each year growth forecast for the broader industry.

In light of this, it's understandable that Eton Pharmaceuticals' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Eton Pharmaceuticals' P/S Mean For Investors?

The strong share price surge has lead to Eton Pharmaceuticals' P/S soaring as well. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Eton Pharmaceuticals' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

You always need to take note of risks, for example - Eton Pharmaceuticals has 1 warning sign we think you should be aware of.

If you're unsure about the strength of Eton Pharmaceuticals' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.