Subdued Growth No Barrier To Microbix Biosystems Inc.'s (TSE:MBX) Price

There wouldn't be many who think Microbix Biosystems Inc.'s (TSE:MBX) price-to-sales (or "P/S") ratio of 1.6x is worth a mention when the median P/S for the Biotechs industry in Canada is very similar. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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View our latest analysis for Microbix Biosystems

How Microbix Biosystems Has Been Performing

Microbix Biosystems hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

Is There Some Revenue Growth Forecasted For Microbix Biosystems?

Microbix Biosystems' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a frustrating 9.5% decrease to the company's top line. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 8.6% as estimated by the only analyst watching the company. Meanwhile, the broader industry is forecast to expand by 49%, which paints a poor picture.

In light of this, it's somewhat alarming that Microbix Biosystems' P/S sits in line with the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

The Key Takeaway

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.

While Microbix Biosystems' P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

Having said that, be aware Microbix Biosystems is showing 1 warning sign in our investment analysis, you should know about.

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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.