Newron Pharmaceuticals S.p.A.'s (VTX:NWRN) Price In Tune With Revenues

When you see that almost half of the companies in the Pharmaceuticals industry in Switzerland have price-to-sales ratios (or "P/S") below 5.1x, Newron Pharmaceuticals S.p.A. (VTX:NWRN) looks to be giving off strong sell signals with its 19.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Newron Pharmaceuticals

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

With revenue growth that's superior to most other companies of late, Newron Pharmaceuticals has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

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.

How Is Newron Pharmaceuticals' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Newron Pharmaceuticals' is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 49% last year. Pleasingly, revenue has also lifted 72% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 68% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 3.8% each year, which is noticeably less attractive.

With this information, we can see why Newron Pharmaceuticals is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Newron Pharmaceuticals' P/S?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Newron Pharmaceuticals maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Pharmaceuticals industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Newron Pharmaceuticals is showing 3 warning signs in our investment analysis, and 2 of those are significant.

If these risks are making you reconsider your opinion on Newron Pharmaceuticals, 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.