Improved Revenues Required Before CASI Pharmaceuticals, Inc. (NASDAQ:CASI) Stock's 114% Jump Looks Justified
CASI Pharmaceuticals, Inc. (NASDAQ:CASI) shareholders would be excited to see that the share price has had a great month, posting a 114% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 40% in the last twelve months.
Although its price has surged higher, CASI Pharmaceuticals may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.3x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 11.5x and even P/S higher than 50x 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 limited.
Check out our latest analysis for CASI Pharmaceuticals
What Does CASI Pharmaceuticals' Recent Performance Look Like?
CASI Pharmaceuticals' revenue growth of late has been pretty similar to most other companies. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.
Keen to find out how analysts think CASI Pharmaceuticals' future stacks up against the industry? In that case, our free report is a great place to start.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
There's an inherent assumption that a company should far underperform the industry for P/S ratios like CASI Pharmaceuticals' to be considered reasonable.
Taking a look back first, we see that the company grew revenue by an impressive 43% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. 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 two analysts covering the company suggest revenue should grow by 31% per annum over the next three years. That's shaping up to be materially lower than the 92% each year growth forecast for the broader industry.
With this in consideration, its clear as to why CASI Pharmaceuticals' P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Key Takeaway
Even after such a strong price move, CASI Pharmaceuticals' P/S still trails the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
We've established that CASI Pharmaceuticals maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
Don't forget that there may be other risks. For instance, we've identified 4 warning signs for CASI Pharmaceuticals (1 is concerning) you should be aware 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).
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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.
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