Arcutis Biotherapeutics, Inc.'s (NASDAQ:ARQT) 75% Share Price Surge Not Quite Adding Up

Despite an already strong run, Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT) shares have been powering on, with a gain of 75% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 36% in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think Arcutis Biotherapeutics' price-to-sales (or "P/S") ratio of 16.8x is worth a mention when the median P/S in the United States' Biotechs industry is similar at about 15.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Arcutis Biotherapeutics

What Does Arcutis Biotherapeutics' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Arcutis Biotherapeutics has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Arcutis Biotherapeutics would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. Still, revenue has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 84% each year as estimated by the six analysts watching the company. That's shaping up to be materially lower than the 296% each year growth forecast for the broader industry.

In light of this, it's curious that Arcutis Biotherapeutics' P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be 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 Arcutis Biotherapeutics' P/S?

Its shares have lifted substantially and now Arcutis Biotherapeutics' P/S is back within range of the industry median. 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.

Given that Arcutis Biotherapeutics' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

You should always think about risks. Case in point, we've spotted 3 warning signs for Arcutis Biotherapeutics you should be aware of, and 1 of them makes us a bit uncomfortable.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.