EyePoint Pharmaceuticals, Inc. (NASDAQ:EYPT) Looks Just Right With A 32% Price Jump

Despite an already strong run, EyePoint Pharmaceuticals, Inc. (NASDAQ:EYPT) shares have been powering on, with a gain of 32% in the last thirty days. The last 30 days bring the annual gain to a very sharp 76%.

Since its price has surged higher, EyePoint Pharmaceuticals may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 18.6x, since almost half of all companies in the Pharmaceuticals industry in the United States have P/S ratios under 4.9x and even P/S lower than 1.7x 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.

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See our latest analysis for EyePoint Pharmaceuticals

What Does EyePoint Pharmaceuticals' Recent Performance Look Like?

Recent times haven't been great for EyePoint Pharmaceuticals as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. 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 EyePoint Pharmaceuticals will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 3.0% last year. Revenue has also lifted 25% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 41% each year over the next three years. With the industry only predicted to deliver 26% per annum, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why EyePoint Pharmaceuticals' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does EyePoint Pharmaceuticals' P/S Mean For Investors?

The strong share price surge has lead to EyePoint Pharmaceuticals' P/S soaring as well. 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.

As we suspected, our examination of EyePoint Pharmaceuticals' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for EyePoint Pharmaceuticals that 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).

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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.