Aquestive Therapeutics, Inc. (NASDAQ:AQST) shares have continued their recent momentum with a 37% gain in the last month alone. The last month tops off a massive increase of 183% in the last year.

After such a large jump in price, Aquestive Therapeutics' price-to-sales (or "P/S") ratio of 7.3x might make it look like a strong sell right now compared to other companies in the Pharmaceuticals industry in the United States, where around half of the companies have P/S ratios below 3x and even P/S below 0.9x are quite common. 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.

How Aquestive Therapeutics Has Been Performing

Aquestive Therapeutics certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Aquestive Therapeutics would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 25% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 39% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 22% per annum as estimated by the eight analysts watching the company. That's shaping up to be materially higher than the 16% per annum growth forecast for the broader industry.

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.

The Final Word

The strong share price surge has lead to Aquestive Therapeutics' P/S soaring as well. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look into Aquestive Therapeutics shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you take the next step, you should know about the 4 warning signs for Aquestive Therapeutics (1 is concerning!) that we have uncovered.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.