Ionis Pharmaceuticals, Inc.'s (NASDAQ:IONS) Shares Climb 28% But Its Business Is Yet to Catch Up

Despite an already strong run, Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) shares have been powering on, with a gain of 28% in the last thirty days. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 4.4% over the last year.

Although its price has surged higher, it's still not a stretch to say that Ionis Pharmaceuticals' price-to-sales (or "P/S") ratio of 9.7x right now seems quite "middle-of-the-road" compared to the Biotechs industry in the United States, where the median P/S ratio is around 8.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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View our latest analysis for Ionis Pharmaceuticals

How Has Ionis Pharmaceuticals Performed Recently?

Ionis Pharmaceuticals could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Ionis Pharmaceuticals' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 7.6% 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 15% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 23% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 102% per annum, which is noticeably more attractive.

With this information, we find it interesting that Ionis Pharmaceuticals is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does Ionis Pharmaceuticals' P/S Mean For Investors?

Its shares have lifted substantially and now Ionis Pharmaceuticals' P/S is back within range of the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

When you consider that Ionis Pharmaceuticals' revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Ionis Pharmaceuticals that you should be aware of.

If you're unsure about the strength of Ionis 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.