Intra-Cellular Therapies, Inc.'s (NASDAQ:ITCI) P/S Is On The Mark

With a price-to-sales (or "P/S") ratio of 14.1x Intra-Cellular Therapies, Inc. (NASDAQ:ITCI) may be sending very bearish signals at the moment, given that almost half of all the Pharmaceuticals companies in the United States have P/S ratios under 2.9x and even P/S lower than 0.7x 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.

Check out our latest analysis for Intra-Cellular Therapies

What Does Intra-Cellular Therapies' Recent Performance Look Like?

Intra-Cellular Therapies certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Intra-Cellular Therapies.

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 Intra-Cellular Therapies' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 86%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 41% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 19% per year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Intra-Cellular Therapies' P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Intra-Cellular Therapies' P/S

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Intra-Cellular Therapies maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Pharmaceuticals industry, as expected. 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.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Intra-Cellular Therapies with six simple checks on some of these key factors.

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.