Yahoo Finance Subdued Growth No Barrier To Crescita Therapeutics Inc.'s (TSE:CTX) Price
With a median price-to-sales (or "P/S") ratio of close to 1x in the Pharmaceuticals industry in Canada, you could be forgiven for feeling indifferent about Crescita Therapeutics Inc.'s (TSE:CTX) P/S ratio of 0.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
View our latest analysis for Crescita Therapeutics
How Crescita Therapeutics Has Been Performing
Revenue has risen firmly for Crescita Therapeutics recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.
Although there are no analyst estimates available for Crescita Therapeutics, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
What Are Revenue Growth Metrics Telling Us About The P/S?
Crescita Therapeutics' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
Taking a look back first, we see that the company grew revenue by an impressive 26% last year. As a result, it also grew revenue by 5.8% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.
This is in contrast to the rest of the industry, which is expected to grow by 7.7% over the next year, materially higher than the company's recent medium-term annualised growth rates.
With this information, we find it interesting that Crescita Therapeutics is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.
The Key Takeaway
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.
We've established that Crescita Therapeutics' average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.
And what about other risks? Every company has them, and we've spotted 1 warning sign for Crescita Therapeutics you should know about.
If these risks are making you reconsider your opinion on Crescita Therapeutics, explore our interactive list of high quality stocks to get an idea of what else is out there.
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.
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