Insufficient Growth At Alkermes plc (NASDAQ:ALKS) Hampers Share Price
With a price-to-sales (or "P/S") ratio of 4.4x Alkermes plc (NASDAQ:ALKS) may be sending very bullish signals at the moment, given that almost half of all the Biotechs companies in the United States have P/S ratios greater than 11.4x and even P/S higher than 55x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.
See our latest analysis for Alkermes
What Does Alkermes' P/S Mean For Shareholders?
While the industry has experienced revenue growth lately, Alkermes' revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.
Keen to find out how analysts think Alkermes' future stacks up against the industry? In that case, our free report is a great place to start.
How Is Alkermes' Revenue Growth Trending?
Alkermes' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 6.7%. As a result, revenue from three years ago have also fallen 6.1% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Turning to the outlook, the next three years should generate growth of 12% each year as estimated by the ten analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 109% per annum, which is noticeably more attractive.
With this information, we can see why Alkermes is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Key Takeaway
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 Alkermes' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Alkermes with six simple checks on some of these key factors.
If these risks are making you reconsider your opinion on Alkermes, 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.
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