CRISPR Therapeutics AG's (NASDAQ:CRSP) Share Price Not Quite Adding Up

CRISPR Therapeutics AG's (NASDAQ:CRSP) price-to-sales (or "P/S") ratio of 16.3x might make it look like a strong sell right now compared to the Biotechs industry in the United States, where around half of the companies have P/S ratios below 10.1x and even P/S below 3x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for CRISPR Therapeutics

How Has CRISPR Therapeutics Performed Recently?

With revenue growth that's inferior to most other companies of late, CRISPR Therapeutics has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

Keen to find out how analysts think CRISPR Therapeutics' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For CRISPR Therapeutics?

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

Taking a look back first, we see that the company grew revenue by an impressive 19% last year. 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 67% per annum during the coming three years according to the analysts following the company. With the industry predicted to deliver 115% growth per annum, the company is positioned for a weaker revenue result.

With this information, we find it concerning that CRISPR Therapeutics is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

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.

We've concluded that CRISPR Therapeutics currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. At these price levels, investors should remain cautious, particularly if things don't improve.

You always need to take note of risks, for example - CRISPR Therapeutics has 2 warning signs we think you should be aware of.

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.