CRISPR Therapeutics AG (NASDAQ:CRSP) Investors Are Less Pessimistic Than Expected

With a price-to-sales (or "P/S") ratio of 20x CRISPR Therapeutics AG (NASDAQ:CRSP) may be sending very bearish signals at the moment, given that almost half of all the Biotechs companies in the United States have P/S ratios under 11.8x and even P/S lower than 4x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for CRISPR Therapeutics

What Does CRISPR Therapeutics' Recent Performance Look Like?

Recent times haven't been great for CRISPR Therapeutics as its revenue has been rising slower than most other companies. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on CRISPR Therapeutics.

How Is CRISPR Therapeutics' Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. However, this wasn't enough as the latest three year period has seen the company endure a nasty 78% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 68% per annum during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 146% each year, which is noticeably more attractive.

With this in consideration, we believe it doesn't make sense that CRISPR Therapeutics' P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

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

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Despite analysts forecasting some poorer-than-industry revenue growth figures for CRISPR Therapeutics, this doesn't appear to be impacting the P/S in the slightest. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. At these price levels, investors should remain cautious, particularly if things don't improve.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with CRISPR Therapeutics, and understanding them should be part of your investment process.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.