Ardelyx, Inc. (NASDAQ:ARDX) shares have continued their recent momentum with a 36% gain in the last month alone. The last month tops off a massive increase of 236% in the last year.

Even after such a large jump in price, it's still not a stretch to say that Ardelyx's price-to-sales (or "P/S") ratio of 10.2x right now seems quite "middle-of-the-road" compared to the Biotechs industry in the United States, where the median P/S ratio is around 11.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Ardelyx

What Does Ardelyx's Recent Performance Look Like?

Ardelyx certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Is There Some Revenue Growth Forecasted For Ardelyx?

In order to justify its P/S ratio, Ardelyx would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an explosive gain to the company's top line. The amazing performance means it was also able to deliver huge revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 50% per year during the coming three years according to the eight analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 221% per year, which is noticeably more attractive.

With this in mind, we find it intriguing that Ardelyx's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

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

Ardelyx appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Given that Ardelyx's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Before you settle on your opinion, we've discovered 2 warning signs for Ardelyx that you should be aware of.

If you're unsure about the strength of Ardelyx's 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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