Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) Held Back By Insufficient Growth Even After Shares Climb 38%

Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) shares have continued their recent momentum with a 38% gain in the last month alone. The last month tops off a massive increase of 104% in the last year.

In spite of the firm bounce in price, Rigel Pharmaceuticals may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.6x, 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 60x 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.

Check out our latest analysis for Rigel Pharmaceuticals

How Rigel Pharmaceuticals Has Been Performing

With revenue growth that's inferior to most other companies of late, Rigel Pharmaceuticals has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is Rigel Pharmaceuticals' Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 22% gain to the company's top line. Revenue has also lifted 14% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 16% each year during the coming three years according to the six analysts following the company. With the industry predicted to deliver 143% growth per annum, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Rigel Pharmaceuticals' P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Rigel Pharmaceuticals' P/S

Rigel Pharmaceuticals' recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

As expected, our analysis of Rigel Pharmaceuticals' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Rigel Pharmaceuticals (2 are concerning!) that you should be aware of before investing here.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.