Investors Don't See Light At End Of Santhera Pharmaceuticals Holding AG's (VTX:SANN) Tunnel And Push Stock Down 26%

Santhera Pharmaceuticals Holding AG (VTX:SANN) shares have had a horrible month, losing 26% after a relatively good period beforehand. Longer-term, the stock has been solid despite a difficult 30 days, gaining 14% in the last year.

Following the heavy fall in price, Santhera Pharmaceuticals Holding may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.9x, since almost half of all companies in the Biotechs industry in Switzerland have P/S ratios greater than 9.5x and even P/S higher than 41x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

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View our latest analysis for Santhera Pharmaceuticals Holding

How Santhera Pharmaceuticals Holding Has Been Performing

While the industry has experienced revenue growth lately, Santhera Pharmaceuticals Holding's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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How Is Santhera Pharmaceuticals Holding's Revenue Growth Trending?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 57%. The latest three year period has seen an incredible overall rise in revenue, a stark contrast to the last 12 months. Accordingly, shareholders will be pleased, but also have some serious questions to ponder about the last 12 months.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 78% over the next year. Meanwhile, the rest of the industry is forecast to expand by 209%, which is noticeably more attractive.

With this information, we can see why Santhera Pharmaceuticals Holding is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Santhera Pharmaceuticals Holding's P/S looks about as weak as its stock price lately. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Santhera Pharmaceuticals Holding's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

Having said that, be aware Santhera Pharmaceuticals Holding is showing 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored.

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.

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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.