Ocular Therapeutix, Inc.'s (NASDAQ:OCUL) Stock Retreats 29% But Revenues Haven't Escaped The Attention Of Investors

Ocular Therapeutix, Inc. (NASDAQ:OCUL) shares have had a horrible month, losing 29% after a relatively good period beforehand. Looking at the bigger picture, even after this poor month the stock is up 30% in the last year.

Even after such a large drop in price, Ocular Therapeutix's price-to-sales (or "P/S") ratio of 43.9x might still 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 4.3x and even P/S below 1.5x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Ocular Therapeutix

What Does Ocular Therapeutix's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Ocular Therapeutix's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high 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 Ocular Therapeutix.

Do Revenue Forecasts Match The High P/S Ratio?

Ocular Therapeutix'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 9.2% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 12% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue should grow by 58% per annum over the next three years. That's shaping up to be materially higher than the 29% per year growth forecast for the broader industry.

With this in mind, it's not hard to understand why Ocular Therapeutix's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

A significant share price dive has done very little to deflate Ocular Therapeutix's very lofty P/S. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look into Ocular Therapeutix shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 3 warning signs for Ocular Therapeutix (1 makes us a bit uncomfortable!) that you need to take into consideration.

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.