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Jun 09, 2023

Aurinia Pharmaceuticals Inc.'s (NASDAQ:AUPH) Shares Lagging The Industry But So Is The Business

You may think that with a price-to-sales (or "P/S") ratio of 9.7x Aurinia

You may think that with a price-to-sales (or "P/S") ratio of 9.7x Aurinia Pharmaceuticals Inc. (NASDAQ:AUPH) is a stock worth checking out, seeing as almost half of all the Biotechs companies in the United States have P/S ratios greater than 13x and even P/S higher than 64x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Aurinia Pharmaceuticals

With revenue growth that's superior to most other companies of late, Aurinia Pharmaceuticals has been doing relatively well. 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

The only time you'd be truly comfortable seeing a P/S as low as Aurinia Pharmaceuticals' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 121% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 27% per year as estimated by the eight analysts watching the company. With the industry predicted to deliver 101% growth per annum, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Aurinia 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.

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 we suspected, our examination of Aurinia Pharmaceuticals' 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. The company will need a change of fortune to justify the P/S rising higher in the future.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Aurinia Pharmaceuticals with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Aurinia Pharmaceuticals, explore our interactive list of high quality stocks to get an idea of what else is out there.

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