Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT) shareholders would be excited to see that the share price has had a great month, posting a 43% gain and recovering from prior weakness. This latest share price bounce rounds out a remarkable 454% gain over the last twelve months.

In spite of the firm bounce in price, there still wouldn't be many who think Arcutis Biotherapeutics' price-to-sales (or "P/S") ratio of 10.5x is worth a mention when the median P/S in the United States' Biotechs industry is similar at about 10.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

How Has Arcutis Biotherapeutics Performed Recently?

With revenue growth that's inferior to most other companies of late, Arcutis Biotherapeutics has been relatively sluggish. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

How Is Arcutis Biotherapeutics' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Arcutis Biotherapeutics' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 183% gain to the company's top line. Still, revenue has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 56% each year as estimated by the seven analysts watching the company. That's shaping up to be materially lower than the 122% each year growth forecast for the broader industry.

In light of this, it's curious that Arcutis Biotherapeutics' P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Arcutis Biotherapeutics' P/S?

Arcutis Biotherapeutics' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look at the analysts forecasts of Arcutis Biotherapeutics' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It is also worth noting that we have found 2 warning signs for Arcutis Biotherapeutics that you need to take into consideration.

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.