Rigel Pharmaceuticals, Inc.'s (NASDAQ:RIGL) Price Is Right But Growth Is Lacking After Shares Rocket 35%

Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) shareholders would be excited to see that the share price has had a great month, posting a 35% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 39% in the last year.

Although its price has surged higher, Rigel Pharmaceuticals may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.4x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 12.1x and even P/S higher than 114x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Rigel Pharmaceuticals

How Has Rigel Pharmaceuticals Performed Recently?

Recent times haven't been great for Rigel Pharmaceuticals as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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Is There Any Revenue Growth Forecasted For Rigel Pharmaceuticals?

Rigel Pharmaceuticals' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Retrospectively, the last year delivered an exceptional 79% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 228% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 8.8% per year during the coming three years according to the five analysts following the company. That's shaping up to be materially lower than the 129% per annum growth forecast for the broader industry.

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 Key Takeaway

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

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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Rigel Pharmaceuticals is showing 3 warning signs in our investment analysis, and 2 of those don't sit too well with us.

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.