To the annoyance of some shareholders, Heron Therapeutics, Inc. (NASDAQ:HRTX) shares are down a considerable 29% in the last month, which continues a horrid run for the company. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 23%.

Following the heavy fall in price, Heron Therapeutics may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.1x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 12.4x and even P/S higher than 73x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

How Has Heron Therapeutics Performed Recently?

Heron Therapeutics could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Keen to find out how analysts think Heron Therapeutics' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Revenue Growth Forecasted For Heron Therapeutics?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Heron Therapeutics' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 16% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 64% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 20% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 138% per year, which is noticeably more attractive.

With this in consideration, its clear as to why Heron Therapeutics' P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Having almost fallen off a cliff, Heron Therapeutics' share price has pulled its P/S way down 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.

As we suspected, our examination of Heron Therapeutics' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with Heron Therapeutics (including 1 which is potentially serious).

If you're unsure about the strength of Heron Therapeutics' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.