There's Reason For Concern Over ProQR Therapeutics N.V.'s (NASDAQ:PRQR) Massive 118% Price Jump

The ProQR Therapeutics N.V. (NASDAQ:PRQR) share price has done very well over the last month, posting an excellent gain of 118%. The last month tops off a massive increase of 202% in the last year.

After such a large jump in price, ProQR Therapeutics' price-to-sales (or "P/S") ratio of 18.1x might make it look like a sell right now compared to the wider Biotechs industry in the United States, where around half of the companies have P/S ratios below 12.9x and even P/S below 4x 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 as high as it is.

Check out our latest analysis for ProQR Therapeutics

What Does ProQR Therapeutics' Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, ProQR Therapeutics has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think ProQR Therapeutics' future stacks up against the industry? In that case, our free report is a great place to start.

How Is ProQR Therapeutics' Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like ProQR Therapeutics' to be considered reasonable.

Retrospectively, the last year delivered an explosive gain to the company's top line. The amazing performance means it was also able to deliver huge revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the five analysts covering the company suggest revenue growth is heading into negative territory, declining 10% per annum over the next three years. That's not great when the rest of the industry is expected to grow by 147% per year.

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 very good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

The Final Word

ProQR Therapeutics shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

Our examination of ProQR Therapeutics' analyst forecasts revealed that its shrinking revenue outlook isn't drawing down its high P/S anywhere near as much as we would have predicted. In cases like this where we see revenue decline on the horizon, we suspect the share price is at risk of following suit, bringing back the high P/S into the realms of suitability. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Having said that, be aware ProQR Therapeutics is showing 3 warning signs in our investment analysis, and 2 of those are a bit unpleasant.

If you're unsure about the strength of ProQR Therapeutics' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.