ACADIA Pharmaceuticals Inc.'s (NASDAQ:ACAD) Share Price Boosted 35% But Its Business Prospects Need A Lift Too

The ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) share price has done very well over the last month, posting an excellent gain of 35%. Looking back a bit further, it's encouraging to see the stock is up 80% in the last year.

Even after such a large jump in price, ACADIA Pharmaceuticals may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 8x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 12.7x and even P/S higher than 54x 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.

View our latest analysis for ACADIA Pharmaceuticals

How Has ACADIA Pharmaceuticals Performed Recently?

ACADIA Pharmaceuticals could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on ACADIA Pharmaceuticals will help you uncover what's on the horizon.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, ACADIA Pharmaceuticals would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 24%. Pleasingly, revenue has also lifted 51% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 28% per year as estimated by the analysts watching the company. With the industry predicted to deliver 243% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that ACADIA Pharmaceuticals' P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Despite ACADIA Pharmaceuticals' share price climbing recently, its P/S still lags most other companies. 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 ACADIA Pharmaceuticals' 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. 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 before investing and we've discovered 1 warning sign for ACADIA Pharmaceuticals that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.