Insufficient Growth At ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) Hampers Share Price

You may think that with a price-to-sales (or "P/S") ratio of 7.6x ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) is a stock worth checking out, seeing as almost half of all the Biotechs companies in the United States have P/S ratios greater than 13.2x and even P/S higher than 56x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for ACADIA Pharmaceuticals

What Does ACADIA Pharmaceuticals' Recent Performance Look Like?

Recent times haven't been great for ACADIA Pharmaceuticals as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. 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.

How Is ACADIA Pharmaceuticals' Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like ACADIA Pharmaceuticals' to be considered reasonable.

Retrospectively, the last year delivered a decent 5.5% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 42% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 21% per annum as estimated by the analysts watching the company. With the industry predicted to deliver 98% growth per annum, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why ACADIA Pharmaceuticals' P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of ACADIA Pharmaceuticals' analyst forecasts revealed that its inferior revenue outlook 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. It's hard to see the share price rising strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for ACADIA Pharmaceuticals with six simple checks on some of these key factors.

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.