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Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) Held Back By Insufficient Growth Even After Shares Climb 28%

Simply Wall St · 06/25 11:48

Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 88% share price decline over the last year.

Although its price has surged higher, Ironwood Pharmaceuticals may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.4x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 8.4x and even P/S higher than 53x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Ironwood Pharmaceuticals

ps-multiple-vs-industry
NasdaqGS:IRWD Price to Sales Ratio vs Industry June 25th 2025

How Ironwood Pharmaceuticals Has Been Performing

While the industry has experienced revenue growth lately, Ironwood Pharmaceuticals' revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ironwood Pharmaceuticals.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered a frustrating 23% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 25% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the five analysts covering the company suggest revenue growth is heading into negative territory, declining 15% each year over the next three years. Meanwhile, the broader industry is forecast to expand by 127% per year, which paints a poor picture.

With this in consideration, we find it intriguing that Ironwood Pharmaceuticals' P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Ironwood Pharmaceuticals' P/S

Ironwood Pharmaceuticals' recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

It's clear to see that Ironwood Pharmaceuticals maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

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

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).