Take Care Before Jumping Onto Redcare Pharmacy NV (ETR:RDC) Even Though It's 26% Cheaper

Redcare Pharmacy NV (ETR:RDC) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 60% share price decline.

In spite of the heavy fall in price, there still wouldn't be many who think Redcare Pharmacy's price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S in Germany's Consumer Retailing industry is similar at about 0.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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Check out our latest analysis for Redcare Pharmacy

How Has Redcare Pharmacy Performed Recently?

With revenue growth that's superior to most other companies of late, Redcare Pharmacy has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

Is There Some Revenue Growth Forecasted For Redcare Pharmacy?

In order to justify its P/S ratio, Redcare Pharmacy would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 27% last year. Pleasingly, revenue has also lifted 142% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 18% per year during the coming three years according to the eight analysts following the company. That's shaping up to be materially higher than the 4.7% per annum growth forecast for the broader industry.

In light of this, it's curious that Redcare Pharmacy's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

Redcare Pharmacy's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Looking at Redcare Pharmacy's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Redcare Pharmacy with six simple checks on some of these key factors.

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.