Tchaikapharma High Quality Medicines AD's (BUL:THQM) 27% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

The Tchaikapharma High Quality Medicines AD (BUL:THQM) share price has fared very poorly over the last month, falling by a substantial 27%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 24% in that time.

Even after such a large drop in price, when almost half of the companies in Bulgaria's Pharmaceuticals industry have price-to-sales ratios (or "P/S") below 3.5x, you may still consider Tchaikapharma High Quality Medicines AD as a stock not worth researching with its 22.5x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Tchaikapharma High Quality Medicines AD

How Has Tchaikapharma High Quality Medicines AD Performed Recently?

Revenue has risen firmly for Tchaikapharma High Quality Medicines AD recently, which is pleasing to see. One possibility is that the P/S ratio is high because investors think this respectable revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Tchaikapharma High Quality Medicines AD's earnings, revenue and cash flow.

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

Tchaikapharma High Quality Medicines AD's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 9.5% last year. The latest three year period has also seen a 25% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 9.5% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that Tchaikapharma High Quality Medicines AD's P/S exceeds that of its industry peers. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Nevertheless, they may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From Tchaikapharma High Quality Medicines AD's P/S?

Even after such a strong price drop, Tchaikapharma High Quality Medicines AD's P/S still exceeds the industry median significantly. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We didn't expect to see Tchaikapharma High Quality Medicines AD trade at such a high P/S considering its last three-year revenue growth has only been on par with the rest of the industry. Right now we are uncomfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Tchaikapharma High Quality Medicines AD with six simple checks.

If these risks are making you reconsider your opinion on Tchaikapharma High Quality Medicines AD, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.