Aquestive Therapeutics, Inc.'s (NASDAQ:AQST) P/S Is On The Mark

When close to half the companies in the Pharmaceuticals industry in the United States have price-to-sales ratios (or "P/S") below 2.9x, you may consider Aquestive Therapeutics, Inc. (NASDAQ:AQST) as a stock to avoid entirely with its 5.3x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Aquestive Therapeutics

How Aquestive Therapeutics Has Been Performing

Recent times haven't been great for Aquestive Therapeutics as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

What Are Revenue Growth Metrics Telling Us About The High P/S?

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

Retrospectively, the last year delivered a decent 14% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 13% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 21% per annum as estimated by the nine analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 18% each year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Aquestive Therapeutics' P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

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.

Our look into Aquestive Therapeutics shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

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

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.