Ascendis Pharma A/S (NASDAQ:ASND) shareholders have had their patience rewarded with a 27% share price jump in the last month. Notwithstanding the latest gain, the annual share price return of 4.0% isn't as impressive.

Following the firm bounce in price, Ascendis Pharma may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 41.2x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios under 11.5x and even P/S lower than 3x are not unusual. 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.

See our latest analysis for Ascendis Pharma

What Does Ascendis Pharma's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Ascendis Pharma has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is Ascendis Pharma's Revenue Growth Trending?

In order to justify its P/S ratio, Ascendis Pharma would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an explosive gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue should grow by 90% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 222% per year, which is noticeably more attractive.

With this in consideration, we believe it doesn't make sense that Ascendis Pharma's P/S is outpacing its industry peers. 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. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Ascendis Pharma's P/S

Shares in Ascendis Pharma have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

It comes as a surprise to see Ascendis Pharma trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Having said that, be aware Ascendis Pharma is showing 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.