There's No Escaping FibroGen, Inc.'s (NASDAQ:FGEN) Muted Revenues Despite A 46% Share Price Rise

Despite an already strong run, FibroGen, Inc. (NASDAQ:FGEN) shares have been powering on, with a gain of 46% in the last thirty days. But the last month did very little to improve the 59% 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 0.4x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 11.1x and even P/S higher than 55x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for FibroGen

What Does FibroGen's Recent Performance Look Like?

FibroGen could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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.

How Is FibroGen's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as FibroGen's is when the company's growth is on track to lag the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 16%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 37% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 7.2% per year during the coming three years according to the two analysts following the company. With the industry predicted to deliver 140% growth per year, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why FibroGen's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From FibroGen's P/S?

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.

As expected, our analysis of FibroGen'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.

There are also other vital risk factors to consider and we've discovered 5 warning signs for FibroGen (3 make us uncomfortable!) that you should be aware of before investing here.

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.