ProQR Therapeutics N.V.'s (NASDAQ:PRQR) Price Is Out Of Tune With Revenues

You may think that with a price-to-sales (or "P/S") ratio of 13.3x ProQR Therapeutics N.V. (NASDAQ:PRQR) is a stock to potentially avoid, seeing as almost half of all the Biotechs companies in the United States have P/S ratios under 10.4x and even P/S lower than 4x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

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Check out our latest analysis for ProQR Therapeutics

What Does ProQR Therapeutics' Recent Performance Look Like?

ProQR Therapeutics could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

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Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, ProQR Therapeutics would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 8.7%. The latest three year period has seen an incredible overall rise in revenue, even though the last 12 month performance was only fair. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 37% per year over the next three years. With the industry predicted to deliver 127% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's alarming that ProQR Therapeutics' P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are 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 ProQR Therapeutics' 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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for ProQR Therapeutics, this doesn't appear to be impacting the P/S in the slightest. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You should always think about risks. Case in point, we've spotted 2 warning signs for ProQR Therapeutics you should be aware of.

If these risks are making you reconsider your opinion on ProQR Therapeutics, 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.