Enanta Pharmaceuticals, Inc. (NASDAQ:ENTA) Stock Catapults 27% Though Its Price And Business Still Lag The Industry

Despite an already strong run, Enanta Pharmaceuticals, Inc. (NASDAQ:ENTA) shares have been powering on, with a gain of 27% in the last thirty days. The last month tops off a massive increase of 145% in the last year.

In spite of the firm bounce in price, Enanta Pharmaceuticals may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 6.8x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 12.1x and even P/S higher than 84x 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.

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Check out our latest analysis for Enanta Pharmaceuticals

What Does Enanta Pharmaceuticals' P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Enanta Pharmaceuticals' revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

Is There Any Revenue Growth Forecasted For Enanta Pharmaceuticals?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 3.4%. As a result, revenue from three years ago have also fallen 24% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 1.5% per annum as estimated by the seven analysts watching the company. With the industry predicted to deliver 130% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Enanta Pharmaceuticals' P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Enanta Pharmaceuticals' P/S?

Despite Enanta 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.

As we suspected, our examination of Enanta Pharmaceuticals' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Enanta Pharmaceuticals (2 are potentially serious!) that you need to be mindful 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.