There's No Escaping Exagen Inc.'s (NASDAQ:XGN) Muted Revenues Despite A 45% Share Price Rise

The Exagen Inc. (NASDAQ:XGN) share price has done very well over the last month, posting an excellent gain of 45%. The last month tops off a massive increase of 186% in the last year.

In spite of the firm bounce in price, Exagen may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.4x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 8.7x and even P/S higher than 47x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Exagen

How Exagen Has Been Performing

With revenue growth that's inferior to most other companies of late, Exagen has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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How Is Exagen's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Exagen's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a decent 5.9% gain to the company's revenues. The latest three year period has also seen a 15% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 15% per year over the next three years. With the industry predicted to deliver 147% growth per annum, the company is positioned for a weaker revenue result.

With this information, we can see why Exagen is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Exagen's P/S?

Even after such a strong price move, Exagen's 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.

We've established that Exagen maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

Plus, you should also learn about these 3 warning signs we've spotted with Exagen (including 1 which can't be ignored).

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