There's No Escaping Collegium Pharmaceutical, Inc.'s (NASDAQ:COLL) Muted Revenues

You may think that with a price-to-sales (or "P/S") ratio of 1.9x Collegium Pharmaceutical, Inc. (NASDAQ:COLL) is a stock worth checking out, seeing as almost half of all the Pharmaceuticals companies in the United States have P/S ratios greater than 3.3x and even P/S higher than 19x 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 reduced P/S.

View our latest analysis for Collegium Pharmaceutical

What Does Collegium Pharmaceutical's Recent Performance Look Like?

Collegium Pharmaceutical could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is Collegium Pharmaceutical's Revenue Growth Trending?

In order to justify its P/S ratio, Collegium Pharmaceutical would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 51% gain to the company's top line. The latest three year period has also seen an excellent 78% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 0.6% per year as estimated by the six analysts watching the company. That's shaping up to be materially lower than the 53% per year growth forecast for the broader industry.

With this in consideration, its clear as to why Collegium Pharmaceutical's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

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 expected, our analysis of Collegium Pharmaceutical's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor 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. The company will need a change of fortune to justify the P/S rising higher in the future.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Collegium Pharmaceutical (1 doesn't sit too well with us!) that you should be aware of before investing here.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.