Alpine Immune Sciences, Inc.'s (NASDAQ:ALPN) 41% Share Price Surge Not Quite Adding Up

Despite an already strong run, Alpine Immune Sciences, Inc. (NASDAQ:ALPN) shares have been powering on, with a gain of 41% in the last thirty days. The last month tops off a massive increase of 188% in the last year.

Following the firm bounce in price, Alpine Immune Sciences' price-to-sales (or "P/S") ratio of 35.6x might make it look like a strong sell right now compared to other companies in the Biotechs industry in the United States, where around half of the companies have P/S ratios below 11.5x and even P/S below 3x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Alpine Immune Sciences

What Does Alpine Immune Sciences' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Alpine Immune Sciences' revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. 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 Alpine Immune Sciences.

How Is Alpine Immune Sciences' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Alpine Immune Sciences' 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 3.2%. The latest three year period has seen an incredible overall rise in revenue, a stark contrast to the last 12 months. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue growth is heading into negative territory, declining 9.3% per year over the next three years. Meanwhile, the broader industry is forecast to expand by 222% each year, which paints a poor picture.

With this information, we find it concerning that Alpine Immune Sciences is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh heavily on the share price eventually.

The Final Word

Shares in Alpine Immune Sciences have seen a strong upwards swing lately, which has really helped boost its P/S figure. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

For a company with revenues that are set to decline in the context of a growing industry, Alpine Immune Sciences' P/S is much higher than we would've anticipated. 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. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Alpine Immune Sciences (1 is a bit concerning!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Alpine Immune Sciences, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.