ACADIA Pharmaceuticals Inc.'s (NASDAQ:ACAD) Price Is Right But Growth Is Lacking

ACADIA Pharmaceuticals Inc.'s (NASDAQ:ACAD) price-to-sales (or "P/S") ratio of 3.9x might make it look like a strong buy right now compared to the Biotechs industry in the United States, where around half of the companies have P/S ratios above 11.8x and even P/S above 65x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for ACADIA Pharmaceuticals

What Does ACADIA Pharmaceuticals' Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, ACADIA Pharmaceuticals has been relatively sluggish. 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 ACADIA Pharmaceuticals' 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 ACADIA Pharmaceuticals?

ACADIA Pharmaceuticals' 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.

Retrospectively, the last year delivered an exceptional 56% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 78% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 15% per annum as estimated by the analysts watching the company. That's shaping up to be materially lower than the 181% each year growth forecast for the broader industry.

In light of this, it's understandable that ACADIA Pharmaceuticals' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On ACADIA Pharmaceuticals' P/S

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 ACADIA Pharmaceuticals' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for ACADIA Pharmaceuticals with six simple checks.

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

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.

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