After Leaping 38% EyePoint, Inc. (NASDAQ:EYPT) Shares Are Not Flying Under The Radar
EyePoint, Inc. (NASDAQ:EYPT) shareholders would be excited to see that the share price has had a great month, posting a 38% gain and recovering from prior weakness. The last month tops off a massive increase of 103% in the last year.
Following the firm bounce in price, EyePoint's price-to-sales (or "P/S") ratio of 31.5x might make it look like a strong sell right now compared to other companies in the Pharmaceuticals industry in the United States, where around half of the companies have P/S ratios below 4.1x and even P/S below 1.3x are quite common. 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.
Check out our latest analysis for EyePoint
What Does EyePoint's P/S Mean For Shareholders?
EyePoint hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on EyePoint.Do Revenue Forecasts Match The High P/S Ratio?
EyePoint's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.
Retrospectively, the last year delivered a frustrating 7.4% decrease to the company's top line. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.
Turning to the outlook, the next three years should generate growth of 72% per annum as estimated by the twelve analysts watching the company. That's shaping up to be materially higher than the 28% per annum growth forecast for the broader industry.
With this in mind, it's not hard to understand why EyePoint's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Key Takeaway
The strong share price surge has lead to EyePoint's P/S soaring as well. 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.
Our look into EyePoint shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.
Before you take the next step, you should know about the 3 warning signs for EyePoint that we have uncovered.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.