Travere Therapeutics, Inc.'s (NASDAQ:TVTX) price-to-sales (or "P/S") ratio of 3.2x might make it look like a strong buy right now compared to the Biotechs industry in the United States, where around half of the companies have P/S ratios above 13.7x and even P/S above 56x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

Check out our latest analysis for Travere Therapeutics

What Does Travere Therapeutics' P/S Mean For Shareholders?

Travere Therapeutics certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. 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.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Travere Therapeutics' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 69% gain to the company's top line. As a result, it also grew revenue by 20% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 27% per year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 240% each year, which is noticeably more attractive.

With this in consideration, its clear as to why Travere Therapeutics' P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

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

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 expected, our analysis of Travere Therapeutics' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. 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.

It is also worth noting that we have found 3 warning signs for Travere Therapeutics that you need to take into consideration.

If you're unsure about the strength of Travere Therapeutics' 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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