Syntara Limited's (ASX:SNT) Low P/S No Reason For Excitement

You may think that with a price-to-sales (or "P/S") ratio of 1.2x Syntara Limited (ASX:SNT) is definitely a stock worth checking out, seeing as almost half of all the Pharmaceuticals companies in Australia have P/S ratios greater than 5.1x and even P/S above 20x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Check out our latest analysis for Syntara

What Does Syntara's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Syntara has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Syntara's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 143%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 14% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the lone analyst covering the company are not good at all, suggesting revenue should decline by 61% over the next year. The industry is also set to see revenue decline 30% but the stock is shaping up to perform materially worse.

In light of this, it's understandable that Syntara's P/S sits below the majority of other companies. Nonetheless, with revenue going quickly in reverse, it's not guaranteed that the P/S has found a floor yet. Even just maintaining these prices could be difficult to achieve as the weak outlook is already weighing down the shares heavily.

The Key Takeaway

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 Syntara's P/S is about what we expect, seeing as the P/S and revenue growth forecasts are lower than that of an already struggling industry. With such a gloomy outlook, investors feel the potential for an improvement in revenue isn't great enough to justify paying a premium resulting in a higher P/S ratio. However, we're still cautious about the company's ability to resist even greater pain to its business from the broader industry turmoil. Given the current circumstances, it's difficult to envision any significant increase in the share price in the near term.

Before you settle on your opinion, we've discovered 4 warning signs for Syntara (1 is a bit concerning!) that you should be aware of.

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.