Revenues Not Telling The Story For Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) After Shares Rise 28%

Despite an already strong run, Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) shares have been powering on, with a gain of 28% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 12% over that time.

Although its price has surged higher, there still wouldn't be many who think Lexicon Pharmaceuticals' price-to-sales (or "P/S") ratio of 8.8x is worth a mention when the median P/S in the United States' Biotechs industry is similar at about 9.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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See our latest analysis for Lexicon Pharmaceuticals

What Does Lexicon Pharmaceuticals' Recent Performance Look Like?

Recent times have been advantageous for Lexicon Pharmaceuticals as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

Is There Some Revenue Growth Forecasted For Lexicon Pharmaceuticals?

Lexicon Pharmaceuticals' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with 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. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 6.6% per annum during the coming three years according to the five analysts following the company. Meanwhile, the broader industry is forecast to expand by 129% per annum, which paints a poor picture.

With this in consideration, we think it doesn't make sense that Lexicon Pharmaceuticals' P/S is closely matching its industry peers. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

The Bottom Line On Lexicon Pharmaceuticals' P/S

Lexicon Pharmaceuticals' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

It appears that Lexicon Pharmaceuticals currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Lexicon Pharmaceuticals you should know about.

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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.