Yahoo Finance Little Excitement Around Acorda Therapeutics, Inc.'s (NASDAQ:ACOR) Revenues
Acorda Therapeutics, Inc.'s (NASDAQ:ACOR) price-to-sales (or "P/S") ratio of 2.1x might make it look like a strong buy right now compared to the Biotechs industry in the United States, where around half of the companies have P/S ratios above 13x and even P/S above 61x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.
Check out our latest analysis for Acorda Therapeutics
What Does Acorda Therapeutics' Recent Performance Look Like?
For example, consider that Acorda Therapeutics' financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Acorda Therapeutics will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.
Although there are no analyst estimates available for Acorda 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 Low P/S?
The only time you'd be truly comfortable seeing a P/S as depressed as Acorda Therapeutics' is when the company's growth is on track to lag the industry decidedly.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 3.6%. The last three years don't look nice either as the company has shrunk revenue by 33% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 66% shows it's an unpleasant look.
With this in mind, we understand why Acorda Therapeutics' P/S is lower than most of its industry peers. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.
What We Can Learn From Acorda Therapeutics' P/S?
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.
It's no surprise that Acorda Therapeutics maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.
There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Acorda Therapeutics that you should be aware of.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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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