Mayne Pharma Group Limited (ASX:MYX) Held Back By Insufficient Growth Even After Shares Climb 26%

Mayne Pharma Group Limited (ASX:MYX) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Notwithstanding the latest gain, the annual share price return of 5.8% isn't as impressive.

In spite of the firm bounce in price, Mayne Pharma Group may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.2x, since almost half of all companies in the Pharmaceuticals industry in Australia have P/S ratios greater than 4.6x and even P/S higher than 34x 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 limited.

Check out our latest analysis for Mayne Pharma Group

How Mayne Pharma Group Has Been Performing

Mayne Pharma Group's revenue growth of late has been pretty similar to most other companies. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. Those who are bullish on Mayne Pharma Group will be hoping that this isn't the case.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Mayne Pharma Group.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Mayne Pharma Group would need to produce anemic growth that's substantially trailing the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 112%. Still, revenue has fallen 3.1% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 10% per year as estimated by the two analysts watching the company. That's shaping up to be materially lower than the 242% per year growth forecast for the broader industry.

In light of this, it's understandable that Mayne Pharma Group's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Shares in Mayne Pharma Group have risen appreciably however, its P/S is still subdued. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Mayne Pharma Group's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you take the next step, you should know about the 1 warning sign for Mayne Pharma Group that we have uncovered.

If you're unsure about the strength of Mayne Pharma Group's 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.