There's Reason For Concern Over OptiNose, Inc.'s (NASDAQ:OPTN) Massive 32% Price Jump

OptiNose, Inc. (NASDAQ:OPTN) shares have continued their recent momentum with a 32% gain in the last month alone. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 3.3% in the last twelve months.

In spite of the firm bounce in price, it's still not a stretch to say that OptiNose's price-to-sales (or "P/S") ratio of 2.8x right now seems quite "middle-of-the-road" compared to the Pharmaceuticals industry in the United States, where the median P/S ratio is around 3.1x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for OptiNose

How Has OptiNose Performed Recently?

OptiNose hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. 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 OptiNose.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like OptiNose's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 7.6% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 64% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 30% each year over the next three years. With the industry predicted to deliver 52% growth per annum, the company is positioned for a weaker revenue result.

With this information, we find it interesting that OptiNose is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

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

Its shares have lifted substantially and now OptiNose's P/S is back within range of the industry median. 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.

Given that OptiNose's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Before you settle on your opinion, we've discovered 3 warning signs for OptiNose (1 is potentially serious!) 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.