Investors Still Waiting For A Pull Back In Axsome Therapeutics, Inc. (NASDAQ:AXSM)

You may think that with a price-to-sales (or "P/S") ratio of 13x Axsome Therapeutics, Inc. (NASDAQ:AXSM) is a stock to avoid completely, seeing as almost half of all the Pharmaceuticals companies in the United States have P/S ratios under 3x and even P/S lower than 0.9x aren't out of the ordinary. 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.

View 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.

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

How Is Axsome Therapeutics' Revenue Growth Trending?

Axsome Therapeutics' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered an exceptional 51% gain to the company's top line. However, 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.

Looking ahead now, revenue is anticipated to climb by 60% each year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 20% per year growth forecast for the broader industry.

With this in mind, it's not hard to understand why Axsome 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 Key Takeaway

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. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Axsome Therapeutics is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Axsome Therapeutics' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.