Zevra Therapeutics, Inc. (NASDAQ:ZVRA) Stocks Shoot Up 31% But Its P/S Still Looks Reasonable

Zevra Therapeutics, Inc. (NASDAQ:ZVRA) shareholders would be excited to see that the share price has had a great month, posting a 31% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 51% in the last year.

Following the firm bounce in price, Zevra Therapeutics may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 20.7x, since almost half of all companies in the Pharmaceuticals industry in the United States have P/S ratios under 3.1x and even P/S lower than 0.9x are not unusual. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Zevra Therapeutics

What Does Zevra Therapeutics' P/S Mean For Shareholders?

Zevra Therapeutics could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Zevra Therapeutics' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Zevra Therapeutics' is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 63%. This means it has also seen a slide in revenue over the longer-term as revenue is down 19% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 91% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 31% each year, which is noticeably less attractive.

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 Bottom Line On Zevra Therapeutics' P/S

The strong share price surge has lead to Zevra Therapeutics' P/S soaring as well. 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. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Zevra Therapeutics with six simple checks.

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.