FibroGen, Inc.'s (NASDAQ:FGEN) Share Price Boosted 35% But Its Business Prospects Need A Lift Too

Despite an already strong run, FibroGen, Inc. (NASDAQ:FGEN) shares have been powering on, with a gain of 35% in the last thirty days. But the last month did very little to improve the 87% share price decline over the last year.

Even after such a large jump in price, FibroGen may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.6x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 15.4x and even P/S higher than 70x are not unusual. 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 FibroGen

What Does FibroGen's P/S Mean For Shareholders?

Recent times haven't been great for FibroGen as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

What Are Revenue Growth Metrics Telling Us About The Low P/S?

FibroGen's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 5.0%. However, this wasn't enough as the latest three year period has seen an unpleasant 16% overall drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 12% per annum over the next three years. That's shaping up to be materially lower than the 148% each year growth forecast for the broader industry.

With this in consideration, its clear as to why FibroGen's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does FibroGen's P/S Mean For Investors?

FibroGen's recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

We've established that FibroGen maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 5 warning signs for FibroGen (3 shouldn't be ignored!) that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.