Despite an already strong run, Amylyx Pharmaceuticals, Inc. (NASDAQ:AMLX) shares have been powering on, with a gain of 81% in the last thirty days. But the last month did very little to improve the 69% share price decline over the last year.

Although its price has surged higher, Amylyx Pharmaceuticals' price-to-sales (or "P/S") ratio of 1.3x might still make it look like a buy right now compared to the Pharmaceuticals industry in the United States, where around half of the companies have P/S ratios above 2.8x and even P/S above 15x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does Amylyx Pharmaceuticals' Recent Performance Look Like?

Recent times have been advantageous for Amylyx Pharmaceuticals as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. 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.

Want the full picture on analyst estimates for the company? Then our free report on Amylyx Pharmaceuticals will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Amylyx Pharmaceuticals?

In order to justify its P/S ratio, Amylyx Pharmaceuticals would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 56% last year. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 82% each year during the coming three years according to the six analysts following the company. Meanwhile, the broader industry is forecast to expand by 16% per annum, which paints a poor picture.

With this information, we are not surprised that Amylyx Pharmaceuticals is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

Despite Amylyx Pharmaceuticals' share price climbing recently, its P/S still lags most other companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Amylyx Pharmaceuticals' P/S is on the lower end of the spectrum. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

Before you take the next step, you should know about the 2 warning signs for Amylyx Pharmaceuticals that we have uncovered.

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.