The Market Doesn't Like What It Sees From FibroGen, Inc.'s (NASDAQ:FGEN) Revenues Yet As Shares Tumble 65%

FibroGen, Inc. (NASDAQ:FGEN) shareholders that were waiting for something to happen have been dealt a blow with a 65% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 71% share price decline.

Since its price has dipped substantially, FibroGen's price-to-sales (or "P/S") ratio of 0.2x might make it look like a strong buy right now compared to the wider Biotechs industry in the United States, where around half of the companies have P/S ratios above 11.6x and even P/S above 63x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

View our latest analysis for FibroGen

How Has FibroGen Performed Recently?

With revenue growth that's inferior to most other companies of late, FibroGen has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For FibroGen?

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

If we review the last year of revenue growth, the company posted a terrific increase of 33%. Still, revenue has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the two analysts covering the company suggest revenue growth is heading into negative territory, declining 6.7% over the next year. Meanwhile, the broader industry is forecast to expand by 134%, which paints a poor picture.

In light of this, it's understandable that FibroGen's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

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

FibroGen's P/S looks about as weak as its stock price lately. 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 FibroGen's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. As other companies in the industry are forecasting revenue growth, FibroGen's poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

And what about other risks? Every company has them, and we've spotted 6 warning signs for FibroGen (of which 3 can't be ignored!) you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.