Some Aclaris Therapeutics, Inc. (NASDAQ:ACRS) Shareholders Look For Exit As Shares Take 31% Pounding

To the annoyance of some shareholders, Aclaris Therapeutics, Inc. (NASDAQ:ACRS) shares are down a considerable 31% in the last month, which continues a horrid run for the company. Longer-term shareholders would now have taken a real hit with the stock declining 9.8% in the last year.

In spite of the heavy fall in price, Aclaris Therapeutics' price-to-sales (or "P/S") ratio of 6.3x might still make it look like a strong sell right now compared to other companies in the Pharmaceuticals industry in the United States, where around half of the companies have P/S ratios below 3.2x and even P/S below 1x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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View our latest analysis for Aclaris Therapeutics

What Does Aclaris Therapeutics' Recent Performance Look Like?

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.

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

Do Revenue Forecasts Match The High P/S Ratio?

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.

Retrospectively, the last year delivered a frustrating 40% decrease to the company's top line. Still, the latest three year period has seen an excellent 177% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 2.3% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 21% each year, which is noticeably more attractive.

In light of this, it's alarming that Aclaris Therapeutics' P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Aclaris Therapeutics' P/S?

A significant share price dive has done very little to deflate Aclaris Therapeutics' very lofty P/S. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

It comes as a surprise to see Aclaris Therapeutics trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Aclaris Therapeutics (2 are a bit concerning) you should be aware of.

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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.