Sandoz Group AG (VTX:SDZ) Shares Fly 28% But Investors Aren't Buying For Growth

Sandoz Group AG (VTX:SDZ) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Even after such a large jump in price, Sandoz Group may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.5x, considering almost half of all companies in the Pharmaceuticals industry in Switzerland have P/S ratios greater than 4.4x and even P/S higher than 11x 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 Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Sandoz Group has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. 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 Sandoz Group.

Is There Any Revenue Growth Forecasted For Sandoz Group?

Sandoz Group's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Retrospectively, the last year delivered a decent 7.2% gain to the company's revenues. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 4.8% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 10% per annum, which is noticeably more attractive.

With this information, we can see why Sandoz Group 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.

What We Can Learn From Sandoz Group's P/S?

Even after such a strong price move, Sandoz Group's P/S still trails the rest of the industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Sandoz Group's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Sandoz Group that you should be aware of.

If you're unsure about the strength of Sandoz Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.