There's No Escaping Rigel Pharmaceuticals, Inc.'s (NASDAQ:RIGL) Muted Revenues Despite A 29% Share Price Rise

Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) shares have had a really impressive month, gaining 29% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 23% over that time.

In spite of the firm bounce in price, Rigel Pharmaceuticals may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.6x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 12x and even P/S higher than 64x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

View our latest analysis for Rigel Pharmaceuticals

What Does Rigel Pharmaceuticals' Recent Performance Look Like?

Rigel Pharmaceuticals hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. 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 Rigel Pharmaceuticals.

How Is Rigel Pharmaceuticals' Revenue Growth Trending?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 4.7%. This means it has also seen a slide in revenue over the longer-term as revenue is down 8.9% 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 climb by 25% each year during the coming three years according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 181% per annum, which is noticeably more attractive.

In light of this, it's understandable that Rigel Pharmaceuticals' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Rigel Pharmaceuticals' P/S?

Even after such a strong price move, Rigel Pharmaceuticals' P/S still trails the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Rigel Pharmaceuticals' analyst forecasts revealed that its inferior revenue outlook is contributing 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. The company will need a change of fortune to justify the P/S rising higher in the future.

It is also worth noting that we have found 2 warning signs for Rigel Pharmaceuticals (1 can't be ignored!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Rigel Pharmaceuticals, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com