Exagen Inc.'s (NASDAQ:XGN) Share Price Boosted 26% But Its Business Prospects Need A Lift Too

Despite an already strong run, Exagen Inc. (NASDAQ:XGN) shares have been powering on, with a gain of 26% in the last thirty days. The annual gain comes to 203% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, Exagen 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 9.9x and even P/S higher than 61x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Exagen

How Has Exagen Performed Recently?

Recent times haven't been great for Exagen as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is Exagen's Revenue Growth Trending?

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

Retrospectively, the last year delivered a decent 8.0% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 15% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 15% each year over the next three years. That's shaping up to be materially lower than the 115% per annum growth forecast for the broader industry.

In light of this, it's understandable that Exagen's 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 Does Exagen's P/S Mean For Investors?

Even after such a strong price move, Exagen's P/S still trails the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Exagen's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Exagen that you need to be mindful of.

If you're unsure about the strength of Exagen's 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.