Aclaris Therapeutics, Inc. (NASDAQ:ACRS) shares have had a really impressive month, gaining 51% after a shaky period beforehand. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 62% share price drop in the last twelve months.

Following the firm bounce in price, when almost half of the companies in the United States' Pharmaceuticals industry have price-to-sales ratios (or "P/S") below 2.8x, you may consider Aclaris Therapeutics as a stock probably not worth researching with its 3.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

How Has Aclaris Therapeutics Performed Recently?

Recent times haven't been great for Aclaris Therapeutics as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is Aclaris Therapeutics' Revenue Growth Trending?

Aclaris Therapeutics' P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 2.7%. The latest three year period has seen an incredible overall rise in revenue, even though the last 12 month performance was only fair. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue growth is heading into negative territory, declining 30% per annum over the next three years. Meanwhile, the broader industry is forecast to expand by 19% per year, which paints a poor picture.

With this information, we find it concerning that Aclaris Therapeutics is trading at a P/S higher than the industry. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh heavily on the share price eventually.

What Does Aclaris Therapeutics' P/S Mean For Investors?

Aclaris Therapeutics shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Aclaris Therapeutics currently trades on a much higher than expected P/S for a company whose revenues are forecast to decline. Right now we aren't comfortable with the high P/S as the predicted future revenue decline likely to impact the positive sentiment that's propping up the P/S. Unless these conditions improve markedly, it'll be a challenging time for shareholders.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Aclaris Therapeutics that you should be aware of.

If you're unsure about the strength of Aclaris Therapeutics' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.