Market Participants Recognise Tarsus Pharmaceuticals, Inc.'s (NASDAQ:TARS) Revenues Pushing Shares 41% Higher

Tarsus Pharmaceuticals, Inc. (NASDAQ:TARS) shares have continued their recent momentum with a 41% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 99% in the last year.

Following the firm bounce in price, Tarsus Pharmaceuticals may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 10.4x, when you consider almost half of the companies in the Pharmaceuticals industry in the United States have P/S ratios under 4.7x and even P/S lower than 1.4x 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 so lofty.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Check out our latest analysis for Tarsus Pharmaceuticals

How Has Tarsus Pharmaceuticals Performed Recently?

With revenue growth that's superior to most other companies of late, Tarsus Pharmaceuticals has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Tarsus Pharmaceuticals?

In order to justify its P/S ratio, Tarsus Pharmaceuticals would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. 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.

Turning to the outlook, the next three years should generate growth of 42% each year as estimated by the seven analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 30% per annum, which is noticeably less attractive.

With this in mind, it's not hard to understand why Tarsus Pharmaceuticals' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

The strong share price surge has lead to Tarsus Pharmaceuticals' P/S soaring as well. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Tarsus Pharmaceuticals' 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. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Tarsus Pharmaceuticals that you need to be mindful 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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.