Take Care Before Jumping Onto Newron Pharmaceuticals S.p.A. (VTX:NWRN) Even Though It's 29% Cheaper

Newron Pharmaceuticals S.p.A. (VTX:NWRN) shareholders won't be pleased to see that the share price has had a very rough month, dropping 29% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 18% share price drop.

Since its price has dipped substantially, Newron Pharmaceuticals may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.8x, since almost half of all companies in the Pharmaceuticals industry in Switzerland have P/S ratios greater than 4x and even P/S higher than 7x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Newron Pharmaceuticals

What Does Newron Pharmaceuticals' Recent Performance Look Like?

Recent times have been advantageous for Newron Pharmaceuticals as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

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

There's an inherent assumption that a company should underperform the industry for P/S ratios like Newron Pharmaceuticals' to be considered reasonable.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 14% per annum during the coming three years according to the two analysts following the company. With the industry only predicted to deliver 3.7% each year, the company is positioned for a stronger revenue result.

With this information, we find it odd that Newron Pharmaceuticals is trading at a P/S lower than the industry. 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?

The southerly movements of Newron Pharmaceuticals' shares means its P/S is now sitting at a pretty low level. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

To us, it seems Newron Pharmaceuticals currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. 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. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Before you take the next step, you should know about the 3 warning signs for Newron Pharmaceuticals (2 are concerning!) that we have uncovered.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.