To the annoyance of some shareholders, Spruce Biosciences, Inc. (NASDAQ:SPRB) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 76% loss during that time.

Following the heavy fall in price, Spruce Biosciences 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 11x and even P/S higher than 63x 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.

What Does Spruce Biosciences' Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Spruce Biosciences has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think Spruce Biosciences' 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 Spruce Biosciences?

Spruce Biosciences' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. 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 bring diminished returns, with revenue decreasing 28% each year as estimated by the seven analysts watching the company. Meanwhile, the broader industry is forecast to expand by 199% per year, which paints a poor picture.

With this in consideration, we find it intriguing that Spruce Biosciences' P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From Spruce Biosciences' P/S?

Having almost fallen off a cliff, Spruce Biosciences' share price has pulled its P/S way down as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Spruce Biosciences' analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

Before you take the next step, you should know about the 4 warning signs for Spruce Biosciences (1 is potentially serious!) that we have uncovered.

If these risks are making you reconsider your opinion on Spruce Biosciences, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com