Aquestive Therapeutics, Inc. (NASDAQ:AQST) shares have retraced a considerable 27% in the last month, reversing a fair amount of their solid recent performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 39%, which is great even in a bull market.
Even after such a large drop in price, Aquestive Therapeutics may still be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 5.6x, when you consider almost half of the companies in the Pharmaceuticals industry in the United States have P/S ratios under 2.9x and even P/S lower than 0.8x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.
NasdaqGM:AQST Price to Sales Ratio vs Industry May 22nd 2024
What Does Aquestive Therapeutics' P/S Mean For Shareholders?
With revenue growth that's inferior to most other companies of late, Aquestive Therapeutics has been relatively sluggish. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.
Want the full picture on analyst estimates for the company? Then our free report on Aquestive Therapeutics will help you uncover what's on the horizon.
Is There Enough Revenue Growth Forecasted For Aquestive Therapeutics?
The only time you'd be truly comfortable seeing a P/S as steep as Aquestive Therapeutics' is when the company's growth is on track to outshine the industry decidedly.
If we review the last year of revenue growth, the company posted a worthy increase of 11%. Revenue has also lifted 6.8% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.
Turning to the outlook, the next three years should generate growth of 22% per year as estimated by the nine analysts watching the company. With the industry only predicted to deliver 17% per year, the company is positioned for a stronger revenue result.
In light of this, it's understandable that Aquestive Therapeutics' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
What We Can Learn From Aquestive Therapeutics' P/S?
Aquestive Therapeutics' shares may have suffered, but its P/S remains high. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
As we suspected, our examination of Aquestive Therapeutics' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
We don't want to rain on the parade too much, but we did also find 4 warning signs for Aquestive Therapeutics (2 shouldn't be ignored!) that you need to be mindful of.
If you're unsure about the strength of Aquestive 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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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.