There's No Escaping Nektar Therapeutics' (NASDAQ:NKTR) Muted Revenues Despite A 44% Share Price Rise

Nektar Therapeutics (NASDAQ:NKTR) shareholders have had their patience rewarded with a 44% share price jump in the last month. But the last month did very little to improve the 75% share price decline over the last year.

Although its price has surged higher, Nektar Therapeutics may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.7x, since almost half of all companies in the Pharmaceuticals industry in the United States have P/S ratios greater than 3.4x and even P/S higher than 18x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Nektar Therapeutics

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

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. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

Is There Any Revenue Growth Forecasted For Nektar Therapeutics?

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

Retrospectively, the last year delivered a frustrating 7.1% decrease to the company's top line. As a result, revenue from three years ago have also fallen 46% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 27% per annum as estimated by the five analysts watching the company. Meanwhile, the broader industry is forecast to expand by 48% 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. 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.

The Bottom Line On Nektar Therapeutics' P/S

Despite Nektar Therapeutics' share price climbing recently, its P/S still lags most other companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

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.

It is also worth noting that we have found 2 warning signs for Nektar Therapeutics that you need to take into consideration.

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.