Travere Therapeutics, Inc.'s (NASDAQ:TVTX) Shareholders Might Be Looking For Exit

It's not a stretch to say that Travere Therapeutics, Inc.'s (NASDAQ:TVTX) price-to-sales (or "P/S") ratio of 9.1x right now seems quite "middle-of-the-road" for companies in the Biotechs industry in the United States, where the median P/S ratio is around 11.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Travere Therapeutics

How Has Travere Therapeutics Performed Recently?

Travere Therapeutics could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Travere Therapeutics would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 57%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 8.0% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 49% per annum during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 143% per annum, which is noticeably more attractive.

With this in mind, we find it intriguing that Travere Therapeutics' P/S is closely matching its industry peers. 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 Final Word

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 Travere Therapeutics' 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. 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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Travere Therapeutics (1 is a bit unpleasant) you should be aware of.

If these risks are making you reconsider your opinion on Travere Therapeutics, 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.