Supernus Pharmaceuticals, Inc.'s (NASDAQ:SUPN) Share Price Could Signal Some Risk

With a median price-to-sales (or "P/S") ratio of close to 2.9x in the Pharmaceuticals industry in the United States, you could be forgiven for feeling indifferent about Supernus Pharmaceuticals, Inc.'s (NASDAQ:SUPN) P/S ratio of 3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Supernus Pharmaceuticals

How Supernus Pharmaceuticals Has Been Performing

While the industry has experienced revenue growth lately, Supernus Pharmaceuticals' revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Want the full picture on analyst estimates for the company? Then our free report on Supernus Pharmaceuticals will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The P/S?

Supernus Pharmaceuticals' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Still, the latest three year period was better as it's delivered a decent 10% overall rise in revenue. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 4.9% per annum as estimated by the four analysts watching the company. That's shaping up to be materially lower than the 19% per year growth forecast for the broader industry.

In light of this, it's curious that Supernus Pharmaceuticals' P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On Supernus Pharmaceuticals' P/S

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

When you consider that Supernus Pharmaceuticals' revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Supernus Pharmaceuticals you should know about.

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

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

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.