Further Upside For Newron Pharmaceuticals S.p.A. (VTX:NWRN) Shares Could Introduce Price Risks After 26% Bounce

Despite an already strong run, Newron Pharmaceuticals S.p.A. (VTX:NWRN) shares have been powering on, with a gain of 26% in the last thirty days. The last month tops off a massive increase of 132% in the last year.

Although its price has surged higher, Newron Pharmaceuticals may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 6.2x, since almost half of all companies in the Pharmaceuticals industry in Switzerland have P/S ratios greater than 8x and even P/S higher than 18x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

View our latest analysis for Newron Pharmaceuticals

How Newron Pharmaceuticals Has Been Performing

With revenue growth that's superior to most other companies of late, Newron Pharmaceuticals has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think Newron Pharmaceuticals' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Revenue Growth Forecasted For Newron Pharmaceuticals?

Newron Pharmaceuticals' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 28% per year over the next three years. That's shaping up to be materially higher than the 3.5% each year growth forecast for the broader industry.

With this in consideration, we find it intriguing that Newron Pharmaceuticals' P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What Does Newron Pharmaceuticals' P/S Mean For Investors?

Despite Newron Pharmaceuticals' share price climbing recently, its P/S still lags most other companies. 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.

A look at Newron Pharmaceuticals' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

It is also worth noting that we have found 2 warning signs for Newron Pharmaceuticals (1 is a bit unpleasant!) that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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.