CRISPR Therapeutics AG's (NASDAQ:CRSP) Popularity With Investors Is Under Threat From Overpricing

You may think that with a price-to-sales (or "P/S") ratio of 29.7x CRISPR Therapeutics AG (NASDAQ:CRSP) is a stock to avoid completely, seeing as almost half of all the Biotechs companies in the United States have P/S ratios under 12.1x and even P/S lower than 3x 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 CRISPR Therapeutics

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

CRISPR Therapeutics certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

What Are Revenue Growth Metrics Telling Us About The High P/S?

The only time you'd be truly comfortable seeing a P/S as steep as CRISPR Therapeutics' is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. The amazing performance means it was also able to grow revenue by 120% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 77% each year during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 240% per annum growth forecast for the broader industry.

In light of this, it's alarming that CRISPR Therapeutics' P/S sits above the majority of other companies. 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 We Can Learn From CRISPR Therapeutics' P/S?

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.

It comes as a surprise to see CRISPR Therapeutics trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It is also worth noting that we have found 2 warning signs for CRISPR Therapeutics that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.