Investors Appear Satisfied With Zevra Therapeutics, Inc.'s (NASDAQ:ZVRA) Prospects As Shares Rocket 34%

Zevra Therapeutics, Inc. (NASDAQ:ZVRA) shares have continued their recent momentum with a 34% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 46%.

Since its price has surged higher, Zevra Therapeutics' price-to-sales (or "P/S") ratio of 16.4x might make it look like a strong sell right now compared to other companies in the Pharmaceuticals industry in the United States, where around half of the companies have P/S ratios below 3.1x and even P/S below 1x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Zevra Therapeutics

What Does Zevra Therapeutics' Recent Performance Look Like?

Zevra Therapeutics certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For Zevra Therapeutics?

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

If we review the last year of revenue growth, the company posted a terrific increase of 43%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 17% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 106% per annum over the next three years. With the industry only predicted to deliver 16% per year, the company is positioned for a stronger revenue result.

With this information, we can see why Zevra Therapeutics is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Shares in Zevra Therapeutics have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

We've established that Zevra Therapeutics maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Pharmaceuticals industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

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

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.