There's No Escaping Fortress Biotech, Inc.'s (NASDAQ:FBIO) Muted Revenues Despite A 99% Share Price Rise

Fortress Biotech, Inc. (NASDAQ:FBIO) shareholders are no doubt pleased to see that the share price has bounced 99% in the last month, although it is still struggling to make up recently lost ground. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 57% share price drop in the last twelve months.

Even after such a large jump in price, Fortress Biotech may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.9x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 12.8x and even P/S higher than 54x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Fortress Biotech

What Does Fortress Biotech's P/S Mean For Shareholders?

Fortress Biotech hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

How Is Fortress Biotech's Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 20%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 44% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 76% per year as estimated by the dual analysts watching the company. With the industry predicted to deliver 248% growth each year, the company is positioned for a weaker revenue result.

With this information, we can see why Fortress Biotech is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Fortress Biotech's P/S

Even after such a strong price move, Fortress Biotech's P/S still trails the rest of the industry. 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 expected, our analysis of Fortress Biotech's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

It is also worth noting that we have found 5 warning signs for Fortress Biotech (4 shouldn't be ignored!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Fortress Biotech, 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.