There's Reason For Concern Over Xeris Biopharma Holdings, Inc.'s (NASDAQ:XERS) Massive 26% Price Jump

Xeris Biopharma Holdings, Inc. (NASDAQ:XERS) shares have continued their recent momentum with a 26% gain in the last month alone. The last month tops off a massive increase of 205% in the last year.

Following the firm bounce in price, Xeris Biopharma Holdings may be sending sell signals at present with a price-to-sales (or "P/S") ratio of 6.1x, when you consider almost half of the companies in the Pharmaceuticals industry in the United States have P/S ratios under 4.4x and even P/S lower than 1.4x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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View our latest analysis for Xeris Biopharma Holdings

How Has Xeris Biopharma Holdings Performed Recently?

With revenue growth that's superior to most other companies of late, Xeris Biopharma Holdings has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as high as Xeris Biopharma Holdings' is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered an exceptional 36% gain to the company's top line. Pleasingly, revenue has also lifted 208% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 21% per year over the next three years. That's shaping up to be materially lower than the 30% per year growth forecast for the broader industry.

In light of this, it's alarming that Xeris Biopharma Holdings' P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. 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.

The Key Takeaway

Xeris Biopharma Holdings' P/S is on the rise since its shares have risen strongly. 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.

It comes as a surprise to see Xeris Biopharma Holdings trade at such a high P/S given the revenue forecasts look less than stellar. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. At these price levels, investors should remain cautious, particularly if things don't improve.

You should always think about risks. Case in point, we've spotted 2 warning signs for Xeris Biopharma Holdings you should be aware of, and 1 of them can't be ignored.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.