When you see that almost half of the companies in the Pharmaceuticals industry in the United States have price-to-sales ratios (or "P/S") below 2.9x, Axsome Therapeutics, Inc. (NASDAQ:AXSM) looks to be giving off strong sell signals with its 12.1x P/S ratio. 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.
NasdaqGM:AXSM Price to Sales Ratio vs Industry April 15th 2024
How Axsome Therapeutics Has Been Performing
Recent times have been advantageous for Axsome Therapeutics as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Keen to find out how analysts think Axsome Therapeutics' future stacks up against the industry? In that case, our free report is a great place to start.
How Is Axsome Therapeutics' Revenue Growth Trending?
There's an inherent assumption that a company should far outperform the industry for P/S ratios like Axsome Therapeutics' to be considered reasonable.
Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. Although, its longer-term performance hasn't been anywhere near as strong with three-year revenue growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.
Looking ahead now, revenue is anticipated to climb by 59% each year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 17% per annum growth forecast for the broader industry.
In light of this, it's understandable that Axsome Therapeutics' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
What Does Axsome Therapeutics' P/S Mean For Investors?
We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that Axsome Therapeutics maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Pharmaceuticals industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
We don't want to rain on the parade too much, but we did also find 1 warning sign for Axsome Therapeutics that you need to be mindful of.
If you're unsure about the strength of Axsome Therapeutics' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.