The Market Doesn't Like What It Sees From Kiniksa Pharmaceuticals, Ltd.'s (NASDAQ:KNSA) Revenues Yet

You may think that with a price-to-sales (or "P/S") ratio of 5.1x Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA) 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 11.6x and even P/S above 49x 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 Kiniksa Pharmaceuticals

What Does Kiniksa Pharmaceuticals' P/S Mean For Shareholders?

Recent times have been advantageous for Kiniksa Pharmaceuticals as its revenues have been rising faster 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 the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think Kiniksa Pharmaceuticals' future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Taking a look back first, we see that the company grew revenue by an impressive 41% last year. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 29% per year as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 221% per year, which is noticeably more attractive.

With this information, we can see why Kiniksa Pharmaceuticals is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Kiniksa Pharmaceuticals' P/S

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Kiniksa 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Kiniksa Pharmaceuticals (1 shouldn't be ignored) you should be aware of.

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.