Revenues Working Against Fennec Pharmaceuticals Inc.'s (NASDAQ:FENC) Share Price

You may think that with a price-to-sales (or "P/S") ratio of 2.5x Fennec Pharmaceuticals Inc. (NASDAQ:FENC) is definitely a stock worth checking out, seeing as almost half of all the Biotechs companies in the United States have P/S ratios greater than 11.4x and even P/S above 67x 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.

Check out our latest analysis for Fennec Pharmaceuticals

What Does Fennec Pharmaceuticals' Recent Performance Look Like?

Fennec 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 degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Fennec Pharmaceuticals will help you uncover what's on the horizon.

How Is Fennec Pharmaceuticals' Revenue Growth Trending?

In order to justify its P/S ratio, Fennec Pharmaceuticals would need to produce anemic growth that's substantially trailing the industry.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 32% per annum during the coming three years according to the six analysts following the company. With the industry predicted to deliver 147% growth per annum, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Fennec Pharmaceuticals' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Fennec Pharmaceuticals' P/S

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.

As we suspected, our examination of Fennec Pharmaceuticals' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Fennec Pharmaceuticals (2 are significant!) that you need to be mindful of.

If you're unsure about the strength of Fennec 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.