Liquidia Corporation (NASDAQ:LQDA) Looks Just Right With A 30% Price Jump

Liquidia Corporation (NASDAQ:LQDA) shares have had a really impressive month, gaining 30% after a shaky period beforehand. The last month tops off a massive increase of 213% in the last year.

After such a large jump in price, Liquidia's price-to-sales (or "P/S") ratio of 43.2x might make it look like a strong sell right now compared to other companies in the Pharmaceuticals industry in the United States, where around half of the companies have P/S ratios below 4x and even P/S below 1.3x are quite common. 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.

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See our latest analysis for Liquidia

What Does Liquidia's Recent Performance Look Like?

Recent times have been advantageous for Liquidia as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Liquidia's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Liquidia's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 118% each year as estimated by the eight analysts watching the company. With the industry only predicted to deliver 30% per year, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Liquidia's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Liquidia's P/S?

The strong share price surge has lead to Liquidia's P/S soaring as well. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Liquidia 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. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you take the next step, you should know about the 1 warning sign for Liquidia that we have uncovered.

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.