Improved Revenues Required Before European Medical Solutions (EBR:ALEMS) Stock's 28% Jump Looks Justified

European Medical Solutions (EBR:ALEMS) shareholders have had their patience rewarded with a 28% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 16% in the last twelve months.

In spite of the firm bounce in price, European Medical Solutions may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.5x, considering almost half of all companies in the Biotechs industry in Belgium have P/S ratios greater than 9.5x and even P/S higher than 46x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for European Medical Solutions

What Does European Medical Solutions' P/S Mean For Shareholders?

The revenue growth achieved at European Medical Solutions over the last year would be more than acceptable for most companies. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on European Medical Solutions will help you shine a light on its historical performance.

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

In order to justify its P/S ratio, European Medical Solutions would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a decent 13% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 26% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 277% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that European Medical Solutions' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What We Can Learn From European Medical Solutions' P/S?

European Medical Solutions' recent share price jump still sees fails to bring its P/S alongside the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of European Medical Solutions revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

You need to take note of risks, for example - European Medical Solutions has 3 warning signs (and 2 which can't be ignored) we think you should know about.

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.