Microba Life Sciences Limited (ASX:MAP) Not Flying Under The Radar

Microba Life Sciences Limited's (ASX:MAP) price-to-sales (or "P/S") ratio of 2.7x may not look like an appealing investment opportunity when you consider close to half the companies in the Healthcare industry in Australia have P/S ratios below 1.3x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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Check out our latest analysis for Microba Life Sciences

What Does Microba Life Sciences' P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Microba Life Sciences has been relatively sluggish. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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How Is Microba Life Sciences' Revenue Growth Trending?

Microba Life Sciences' 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 terrific increase of 30%. The latest three year period has also seen an excellent 234% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 26% per annum as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 21% per year growth forecast for the broader industry.

In light of this, it's understandable that Microba Life Sciences' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Microba Life Sciences' 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.

We've established that Microba Life Sciences maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Healthcare industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Microba Life Sciences (1 is concerning!) that you need to be mindful of.

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.