UroGen Pharma Ltd. (NASDAQ:URGN) shares have had a really impressive month, gaining 45% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 60% in the last year.

Although its price has surged higher, UroGen Pharma may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 8.2x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 11.7x and even P/S higher than 66x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does UroGen Pharma's Recent Performance Look Like?

Recent times haven't been great for UroGen Pharma as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre 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.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

UroGen Pharma's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 24%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 48% per annum over the next three years. With the industry predicted to deliver 205% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that UroGen Pharma's 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.

The Final Word

Despite UroGen Pharma's share price climbing recently, its P/S still lags most other companies. 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.

We've established that UroGen Pharma maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. 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.

Before you take the next step, you should know about the 5 warning signs for UroGen Pharma (2 are concerning!) that we have uncovered.

If you're unsure about the strength of UroGen Pharma's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com