Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) Stock Catapults 44% Though Its Price And Business Still Lag The Industry
Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) shareholders would be excited to see that the share price has had a great month, posting a 44% gain and recovering from prior weakness. Unfortunately, despite the strong performance over the last month, the full year gain of 2.4% isn't as attractive.
Although its price has surged higher, Rigel Pharmaceuticals' price-to-sales (or "P/S") ratio of 1.7x might still make it look like a strong buy right now compared to the wider Biotechs industry in the United States, where around half of the companies have P/S ratios above 11.6x and even P/S above 49x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for Rigel Pharmaceuticals
How Rigel Pharmaceuticals Has Been Performing
Recent times have been advantageous for Rigel Pharmaceuticals as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.
Want the full picture on analyst estimates for the company? Then our free report on Rigel Pharmaceuticals will help you uncover what's on the horizon.
How Is Rigel Pharmaceuticals' Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as depressed as Rigel Pharmaceuticals' is when the company's growth is on track to lag the industry decidedly.
Retrospectively, the last year delivered an exceptional 51% gain to the company's top line. The latest three year period has also seen a 23% overall rise in revenue, aided extensively 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.
Looking ahead now, revenue is anticipated to climb by 11% per annum during the coming three years according to the six analysts following the company. With the industry predicted to deliver 221% growth per annum, the company is positioned for a weaker revenue result.
With this in consideration, its clear as to why Rigel Pharmaceuticals' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What We Can Learn From Rigel Pharmaceuticals' P/S?
Even after such a strong price move, Rigel Pharmaceuticals' P/S still trails the rest of the industry. 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.
As expected, our analysis of Rigel Pharmaceuticals' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor 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.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Rigel Pharmaceuticals (at least 1 which is a bit unpleasant), and understanding these should be part of your investment process.
If you're unsure about the strength of Rigel Pharmaceuticals' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.
