The FibroGen, Inc. (NASDAQ:FGEN) share price has fared very poorly over the last month, falling by a substantial 64%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 70% loss during that time.

Since its price has dipped substantially, FibroGen's price-to-sales (or "P/S") ratio of 0.2x might make it look like a strong buy right now compared to the wider Biotechs industry in the United States, where around half of the companies have P/S ratios above 11.9x and even P/S above 67x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

How Has FibroGen Performed Recently?

FibroGen could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as depressed as FibroGen's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered an exceptional 33% gain to the company's top line. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue growth is heading into negative territory, declining 6.7% over the next year. With the industry predicted to deliver 135% growth, that's a disappointing outcome.

With this information, we are not surprised that FibroGen is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does FibroGen's P/S Mean For Investors?

Shares in FibroGen have plummeted and its P/S has followed suit. 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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that FibroGen's P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, FibroGen's poor outlook justifies its low P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 6 warning signs we've spotted with FibroGen (including 3 which are potentially serious).

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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.