Capricor Therapeutics, Inc.'s (NASDAQ:CAPR) 25% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

To the annoyance of some shareholders, Capricor Therapeutics, Inc. (NASDAQ:CAPR) shares are down a considerable 25% in the last month, which continues a horrid run for the company. Looking at the bigger picture, even after this poor month the stock is up 66% in the last year.

Although its price has dipped substantially, Capricor Therapeutics' price-to-sales (or "P/S") ratio of 20.2x might still make it look like a strong sell right now compared to other companies in the Biotechs industry in the United States, where around half of the companies have P/S ratios below 8x and even P/S below 2x 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.

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View our latest analysis for Capricor Therapeutics

What Does Capricor Therapeutics' P/S Mean For Shareholders?

Capricor Therapeutics could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high 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 Capricor Therapeutics' future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

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

Retrospectively, the last year delivered a frustrating 36% decrease to the company's top line. In spite of this, the company still managed to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company, but investors will want to ask why it is now in decline.

Turning to the outlook, the next three years should generate growth of 110% per year as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 113% per year, which is not materially different.

With this information, we find it interesting that Capricor Therapeutics is trading at a high P/S compared to the industry. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Capricor Therapeutics' P/S?

Even after such a strong price drop, Capricor Therapeutics' P/S still exceeds the industry median significantly. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Seeing as its revenues are forecast to grow in line with the wider industry, it would appear that Capricor Therapeutics currently trades on a higher than expected P/S. When we see revenue growth that just matches the industry, we don't expect elevates P/S figures to remain inflated for the long-term. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.

Plus, you should also learn about these 2 warning signs we've spotted with Capricor Therapeutics.

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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.