ProQR Therapeutics N.V. (NASDAQ:PRQR) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 46%.

Although its price has surged higher, it's still not a stretch to say that ProQR Therapeutics' price-to-sales (or "P/S") ratio of 10.5x right now seems quite "middle-of-the-road" compared to the Biotechs industry in the United States, where the median P/S ratio is around 11.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

What Does ProQR Therapeutics' P/S Mean For Shareholders?

ProQR Therapeutics certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

What Are Revenue Growth Metrics Telling Us About The P/S?

The only time you'd be comfortable seeing a P/S like ProQR Therapeutics' is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to slump, contracting by 13% per year during the coming three years according to the five analysts following the company. Meanwhile, the broader industry is forecast to expand by 138% per annum, which paints a poor picture.

In light of this, it's somewhat alarming that ProQR Therapeutics' P/S sits in line with the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

What We Can Learn From ProQR Therapeutics' P/S?

ProQR Therapeutics' stock has a lot of momentum behind it lately, which has brought its P/S level with 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.

While ProQR Therapeutics' P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue decline. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

There are also other vital risk factors to consider and we've discovered 2 warning signs for ProQR Therapeutics (1 can't be ignored!) that you should be aware of before investing here.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.