Capricor Therapeutics, Inc. (NASDAQ:CAPR) shares have retraced a considerable 25% in the last month, reversing a fair amount of their solid recent performance. Longer-term shareholders would now have taken a real hit with the stock declining 4.7% in the last year.

After such a large drop in price, Capricor Therapeutics may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 8.7x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 13.7x and even P/S higher than 56x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Capricor Therapeutics Has Been Performing

With revenue growth that's superior to most other companies of late, Capricor Therapeutics has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

How Is Capricor Therapeutics' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Capricor Therapeutics' is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. The amazing performance means it was also able to deliver huge revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 72% per annum during the coming three years according to the three analysts following the company. That's shaping up to be materially lower than the 226% each year growth forecast for the broader industry.

With this in consideration, its clear as to why Capricor Therapeutics' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does Capricor Therapeutics' P/S Mean For Investors?

Capricor Therapeutics' P/S has taken a dip along with its share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Capricor Therapeutics maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Capricor Therapeutics (1 is a bit unpleasant!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Capricor Therapeutics, 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.