There's Reason For Concern Over CRISPR Therapeutics AG's (NASDAQ:CRSP) Massive 26% Price Jump

CRISPR Therapeutics AG (NASDAQ:CRSP) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 64%.

After such a large jump in price, CRISPR Therapeutics may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 40.4x, when you consider almost half of the companies in the Biotechs industry in the United States have P/S ratios under 14.2x and even P/S lower than 4x 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' Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, CRISPR Therapeutics has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. 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?

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

If we review the last year of revenue growth, we see the company's revenues grew exponentially. The latest three year period has also seen an excellent 120% overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 78% 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 269% per year, which is noticeably more attractive.

With this information, we find it concerning that CRISPR Therapeutics is trading at a P/S higher than the industry. 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.

The Bottom Line On CRISPR Therapeutics' P/S

Shares in CRISPR Therapeutics have seen a strong upwards swing lately, which has really helped boost its P/S figure. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

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. 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.

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

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.