Nektar Therapeutics' (NASDAQ:NKTR) Business And Shares Still Trailing The Industry

You may think that with a price-to-sales (or "P/S") ratio of 1.2x Nektar Therapeutics (NASDAQ:NKTR) is definitely a stock worth checking out, seeing as almost half of all the Pharmaceuticals companies in the United States have P/S ratios greater than 3.2x and even P/S above 20x 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.

View our latest analysis for Nektar Therapeutics

How Nektar Therapeutics Has Been Performing

While the industry has experienced revenue growth lately, Nektar Therapeutics' revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. 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 Nektar Therapeutics will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Nektar Therapeutics?

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

Retrospectively, the last year delivered a frustrating 7.1% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 46% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 6.1% per year during the coming three years according to the seven analysts following the company. Meanwhile, the broader industry is forecast to expand by 57% each year, which paints a poor picture.

With this information, we are not surprised that Nektar Therapeutics is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does Nektar Therapeutics' P/S Mean For Investors?

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.

It's clear to see that Nektar Therapeutics maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. As other companies in the industry are forecasting revenue growth, Nektar Therapeutics' poor outlook justifies its low P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Nektar Therapeutics is showing 2 warning signs in our investment analysis, you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.