With Intra-Cellular Therapies, Inc. (NASDAQ:ITCI) It Looks Like You'll Get What You Pay For

With a price-to-sales (or "P/S") ratio of 16.5x 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 3.1x and even P/S lower than 0.8x 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

With revenue growth that's superior to most other companies of late, Intra-Cellular Therapies has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated 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 Intra-Cellular Therapies will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The High P/S?

Intra-Cellular Therapies' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered an exceptional 65% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 42% per annum as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 20% 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. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the 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. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Having said that, be aware Intra-Cellular Therapies is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Intra-Cellular Therapies, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

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