What Revance Therapeutics, Inc.'s (NASDAQ:RVNC) 30% Share Price Gain Is Not Telling You

Those holding Revance Therapeutics, Inc. (NASDAQ:RVNC) shares would be relieved that the share price has rebounded 30% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 79% share price decline over the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Revance Therapeutics' price-to-sales (or "P/S") ratio of 2.6x right now seems quite "middle-of-the-road" compared to the Pharmaceuticals industry in the United States, where the median P/S ratio is around 3.1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Revance Therapeutics

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

Recent times have been advantageous for Revance Therapeutics as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

Is There Some Revenue Growth Forecasted For Revance Therapeutics?

The only time you'd be comfortable seeing a P/S like Revance Therapeutics' is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 77% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 29% each year as estimated by the eleven analysts watching the company. That's shaping up to be materially lower than the 46% each year growth forecast for the broader industry.

With this in mind, we find it intriguing that Revance Therapeutics' P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Revance Therapeutics' P/S

Revance Therapeutics' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Given that Revance Therapeutics' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Before you settle on your opinion, we've discovered 4 warning signs for Revance Therapeutics (1 can't be ignored!) that you should be aware of.

If you're unsure about the strength of Revance Therapeutics' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.