Axsome Therapeutics, Inc.'s (NASDAQ:AXSM) P/S Is Still On The Mark Following 27% Share Price Bounce

Axsome Therapeutics, Inc. (NASDAQ:AXSM) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Notwithstanding the latest gain, the annual share price return of 5.1% isn't as impressive.

Since its price has surged higher, Axsome Therapeutics may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 16.8x, when you consider almost half of the companies in the Pharmaceuticals industry in the United States have P/S ratios under 2.9x and even P/S lower than 0.7x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Axsome Therapeutics

What Does Axsome Therapeutics' Recent Performance Look Like?

Recent times have been advantageous for Axsome Therapeutics as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Axsome Therapeutics' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Axsome Therapeutics?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Axsome Therapeutics' to be considered reasonable.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. In spite of this unbelievable short-term growth, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 68% per annum over the next three years. With the industry only predicted to deliver 53% each year, the company is positioned for a stronger revenue result.

With this information, we can see why Axsome Therapeutics is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

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

Shares in Axsome Therapeutics have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

We've established that Axsome Therapeutics maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Pharmaceuticals industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. 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 1 warning sign for Axsome Therapeutics that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.