Revenues Tell The Story For Zevra Therapeutics, Inc. (NASDAQ:ZVRA) As Its Stock Soars 26%

Zevra Therapeutics, Inc. (NASDAQ:ZVRA) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 87% in the last year.

Since its price has surged higher, Zevra Therapeutics may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 11.7x, since almost half of all companies in the Pharmaceuticals industry in the United States have P/S ratios under 4.3x and even P/S lower than 1.4x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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View our latest analysis for Zevra Therapeutics

How Has Zevra Therapeutics Performed Recently?

Zevra Therapeutics certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Zevra Therapeutics would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 46% last year. Pleasingly, revenue has also lifted 98% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 89% per year as estimated by the seven analysts watching the company. With the industry only predicted to deliver 18% each year, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Zevra Therapeutics' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Zevra Therapeutics' P/S?

Zevra Therapeutics' P/S has grown nicely over the last month thanks to a handy boost in the share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Zevra Therapeutics' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Zevra Therapeutics you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.