Revenues Not Telling The Story For Aclaris Therapeutics, Inc. (NASDAQ:ACRS) After Shares Rise 31%

Aclaris Therapeutics, Inc. (NASDAQ:ACRS) shares have continued their recent momentum with a 31% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 38% in the last year.

Since its price has surged higher, Aclaris Therapeutics may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 16.1x, when you consider almost half of the companies in the Pharmaceuticals industry in the United States have P/S ratios under 4.3x and even P/S lower than 1.4x aren't out of the ordinary. 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.

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See our latest analysis for Aclaris Therapeutics

How Aclaris Therapeutics Has Been Performing

While the industry has experienced revenue growth lately, Aclaris Therapeutics' revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For Aclaris Therapeutics?

The only time you'd be truly comfortable seeing a P/S as steep as Aclaris Therapeutics' is when the company's growth is on track to outshine the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 48%. Even so, admirably revenue has lifted 173% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue growth is heading into negative territory, declining 22% per year over the next three years. Meanwhile, the broader industry is forecast to expand by 47% each year, which paints a poor picture.

With this information, we find it concerning that Aclaris Therapeutics is trading at a P/S higher than the industry. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh heavily on the share price eventually.

The Key Takeaway

Aclaris Therapeutics' P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

Our examination of Aclaris Therapeutics' analyst forecasts revealed that its shrinking revenue outlook isn't drawing down its high P/S anywhere near as much as we would have predicted. Right now we aren't comfortable with the high P/S as the predicted future revenue decline likely to impact the positive sentiment that's propping up the P/S. Unless these conditions improve markedly, it'll be a challenging time for shareholders.

Before you take the next step, you should know about the 3 warning signs for Aclaris Therapeutics (2 are potentially serious!) that we have uncovered.

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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.