Why Investors Shouldn't Be Surprised By ACADIA Pharmaceuticals Inc.'s (NASDAQ:ACAD) Low P/S

You may think that with a price-to-sales (or "P/S") ratio of 3.1x ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) is definitely a stock worth checking out, seeing as almost half of all the Biotechs companies in the United States have P/S ratios greater than 10.7x and even P/S above 67x 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 highly reduced P/S.

See 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. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on ACADIA Pharmaceuticals.

Is There Any Revenue Growth Forecasted For ACADIA Pharmaceuticals?

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

Retrospectively, the last year delivered an exceptional 47% gain to the company's top line. The latest three year period has also seen an excellent 96% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 10% per year over the next three years. That's shaping up to be materially lower than the 115% per annum 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 Key Takeaway

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.

We've established that ACADIA Pharmaceuticals maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

A lot of potential risks can sit within a 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.

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.

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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.