Zevra Therapeutics, Inc.'s (NASDAQ:ZVRA) 26% Jump Shows Its Popularity With Investors

Zevra Therapeutics, Inc. (NASDAQ:ZVRA) shareholders have had their patience rewarded with a 26% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 26% in the last year.

Since its price has surged higher, Zevra Therapeutics' price-to-sales (or "P/S") ratio of 9.2x 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 2.8x and even P/S below 0.8x 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.

See our latest analysis for Zevra Therapeutics

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

Recent times have been advantageous for Zevra Therapeutics as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Zevra Therapeutics' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Zevra Therapeutics' Revenue Growth Trending?

In order to justify its P/S ratio, Zevra Therapeutics would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 196% gain to the company's top line. Revenue has also lifted 19% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 86% each year over the next three years. That's shaping up to be materially higher than the 19% per annum growth forecast for the broader industry.

In light of this, it's understandable that Zevra Therapeutics' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

The strong share price surge has lead to Zevra Therapeutics' P/S soaring as well. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Zevra Therapeutics' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Zevra Therapeutics that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com