After Leaping 31% Intra-Cellular Therapies, Inc. (NASDAQ:ITCI) Shares Are Not Flying Under The Radar

Intra-Cellular Therapies, Inc. (NASDAQ:ITCI) shareholders would be excited to see that the share price has had a great month, posting a 31% gain and recovering from prior weakness. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Since its price has surged higher, Intra-Cellular Therapies may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 22.9x, since almost half of all companies in the Pharmaceuticals industry in the United States have P/S ratios under 3.1x and even P/S lower than 0.9x are not unusual. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Intra-Cellular Therapies

How Intra-Cellular Therapies Has Been Performing

Intra-Cellular Therapies certainly has been doing a good job lately as it's been growing revenue more than most other companies. 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 to much for the stock.

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

Do Revenue Forecasts Match The High P/S Ratio?

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

If we review the last year of revenue growth, the company posted a terrific increase of 199%. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 58% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 31% per annum, which is noticeably less attractive.

With this information, we can see why Intra-Cellular Therapies is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Shares in Intra-Cellular Therapies 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.

As we suspected, our examination of Intra-Cellular Therapies' 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 these conditions change, they will continue to provide strong support to the share price.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Intra-Cellular Therapies with six simple checks on some of these key factors.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.