MediPharm Labs Corp.'s (TSE:LABS) Shares Leap 54% Yet They're Still Not Telling The Full Story

MediPharm Labs Corp. (TSE:LABS) shareholders have had their patience rewarded with a 54% share price jump in the last month. Unfortunately, despite the strong performance over the last month, the full year gain of 5.3% isn't as attractive.

Even after such a large jump in price, there still wouldn't be many who think MediPharm Labs' price-to-sales (or "P/S") ratio of 1.1x is worth a mention when the median P/S in Canada's Pharmaceuticals industry is similar at about 0.9x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for MediPharm Labs

How Has MediPharm Labs Performed Recently?

Recent times have been advantageous for MediPharm Labs as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If not, then existing shareholders have reason to be feeling optimistic 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 MediPharm Labs.

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

In order to justify its P/S ratio, MediPharm Labs would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 32% last year. The strong recent performance means it was also able to grow revenue by 77% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 20% over the next year. With the industry only predicted to deliver 8.8%, the company is positioned for a stronger revenue result.

With this information, we find it interesting that MediPharm Labs is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

MediPharm Labs' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Despite enticing revenue growth figures that outpace the industry, MediPharm Labs' P/S isn't quite what we'd expect. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

We don't want to rain on the parade too much, but we did also find 3 warning signs for MediPharm Labs that you need to be mindful of.

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

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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.