The Price Is Right For Aquestive Therapeutics, Inc. (NASDAQ:AQST) Even After Diving 25%

Unfortunately for some shareholders, the Aquestive Therapeutics, Inc. (NASDAQ:AQST) share price has dived 25% in the last thirty days, prolonging recent pain. Looking at the bigger picture, even after this poor month the stock is up 85% in the last year.

Although its price has dipped substantially, Aquestive Therapeutics' price-to-sales (or "P/S") ratio of 5.4x 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 2.9x and even P/S below 0.9x are quite common. 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.

See our latest analysis for Aquestive Therapeutics

How Aquestive Therapeutics Has Been Performing

With revenue growth that's inferior to most other companies of late, Aquestive Therapeutics has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

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?

In order to justify its P/S ratio, Aquestive Therapeutics would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 23% gain to the company's top line. As a result, it also grew revenue by 26% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 27% per annum over the next three years. With the industry only predicted to deliver 20% each year, the company is positioned for a stronger revenue result.

With this information, we can see why Aquestive Therapeutics is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Aquestive Therapeutics' P/S Mean For Investors?

Aquestive Therapeutics' shares may have suffered, but its P/S remains high. 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.

As we suspected, our examination of Aquestive Therapeutics' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 3 warning signs for Aquestive Therapeutics (1 is a bit concerning!) that we have uncovered.

If these risks are making you reconsider your opinion on Aquestive Therapeutics, 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.