The Price Is Right for Avadel Pharmaceuticals plc (NASDAQ:AVDL) Even After a 27% Drop

The Avadel Pharmaceuticals plc (NASDAQ:AVDL) The stock price has performed very poorly over the last month, falling a significant 27%. Making matters worse, the recent decline has wiped out a year’s worth of gains and the share price is now back to where it started a year ago.

Although the price has dropped significantly, Avadel Pharmaceuticals may still be sending strong sell signals at the moment, with a price-to-sales ratio (or “P/S”) of 7.7x when considering almost half of the companies in the pharmaceutical industry in the United States have P/S ratios below 3x, and even P/S ratios below 0.9x are not uncommon. However, the P/S may be quite high for a reason and further research is needed to determine whether it is justified.

Check out our latest analysis for Avadel Pharmaceuticals

What is Avadel Pharmaceuticals’ recent performance?

Avadel Pharmaceuticals has certainly done a good job of late, with revenue growth stronger than most other companies. It seems that many are expecting the strong sales performance to continue, which has increased the P/E ratio. If not, existing shareholders may be a little nervous about the sustainability of the share price.

If you want to see what analysts are predicting for the future, you should check out our free Report on Avadel Pharmaceuticals.

Is Avadel Pharmaceuticals forecast to see sufficient revenue growth?

For a P/S ratio like Avadel Pharmaceuticals’s to be considered reasonable, there is an inherent assumption that a company should outperform the industry by a wide margin.

If we first look back, we see that the company’s revenue has seen tremendous growth over the last 12 months. However, the longer-term performance wasn’t nearly as strong, with overall sales growth over three years being relatively low. Therefore, it’s fair to say that the company’s revenue growth has been inconsistent recently.

Revenue is expected to grow 47% annually over the next three years, according to the eight analysts covering the company. With the industry expected to deliver only 19% each year, the company is poised for a better top line performance.

With this in mind, it’s not hard to understand why Avadel Pharmaceuticals’ P/E ratio is high compared to its industry peers. Apparently shareholders aren’t interested in selling off something that might be aimed at a more prosperous future.

The bottom line on Avadel Pharmaceuticals’ P/E ratio

A significant share price decline has done little to dent Avadel Pharmaceuticals’ very high P/E ratio. It doesn’t make sense to use the price-to-sales ratio alone to determine whether you should sell your stock, but it can be a practical guide to the company’s future prospects.

Our look at Avadel Pharmaceuticals shows that the P/E ratio remains high due to strong future sales. At this point, investors believe the potential for earnings deterioration to be quite low, justifying the elevated P/E ratio. Unless these conditions change, they will continue to provide strong support for the share price.

Be aware of this Avadel Pharmaceuticals is showing 1 warning sign You should know about this in our investment analysis.

If yes uncertain about the strength of Avadel Pharmaceuticals’ businessExplore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.