It's A Story Of Risk Vs Reward With Sandoz Group AG (VTX:SDZ)

You may think that with a price-to-sales (or "P/S") ratio of 1.8x Sandoz Group AG (VTX:SDZ) is definitely a stock worth checking out, seeing as almost half of all the Pharmaceuticals companies in Switzerland have P/S ratios greater than 5.1x and even P/S above 8x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

View our latest analysis for Sandoz Group

What Does Sandoz Group's P/S Mean For Shareholders?

Recent times haven't been great for Sandoz Group as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as depressed as Sandoz Group's is when the company's growth is on track to lag the industry decidedly.

Taking a look back first, we see that the company managed to grow revenues by a handy 4.1% last year. The solid recent performance means it was also able to grow revenue by 7.3% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 5.4% per annum as estimated by the twelve analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 3.7% per annum, which is not materially different.

With this in consideration, we find it intriguing that Sandoz Group's P/S is lagging behind its industry peers. It may be that most investors are not convinced the company can achieve future growth expectations.

The Final Word

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.

We've seen that Sandoz Group currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

You always need to take note of risks, for example - Sandoz Group has 1 warning sign we think you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.