Stock Analysis

Benign Growth For Capricor Therapeutics, Inc. (NASDAQ:CAPR) Underpins Stock's 26% Plummet

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The Capricor Therapeutics, Inc. (NASDAQ:CAPR) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 22%.

After such a large drop in price, Capricor Therapeutics may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 6.3x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 12.7x and even P/S higher than 64x 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 reduced P/S.

Check out our latest analysis for Capricor Therapeutics

NasdaqCM:CAPR Price to Sales Ratio vs Industry April 19th 2024

What Does Capricor Therapeutics' Recent Performance Look Like?

Capricor Therapeutics certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Capricor Therapeutics would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered an explosive gain to the company's top line. The amazing performance means it was also able to deliver huge revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 69% each year as estimated by the four analysts watching the company. That's shaping up to be materially lower than the 164% per annum growth forecast for the broader industry.

With this in consideration, its clear as to why Capricor Therapeutics' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Having almost fallen off a cliff, Capricor Therapeutics' share price has pulled its P/S way down as well. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Capricor Therapeutics' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about this 1 warning sign we've spotted with Capricor Therapeutics.

If these risks are making you reconsider your opinion on Capricor Therapeutics, explore our interactive list of high quality stocks to get an idea of what else is out there.

Valuation is complex, but we're helping make it simple.

Find out whether Capricor Therapeutics is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.