BRAIN Biotech AG's (ETR:BNN) P/S Still Appears To Be Reasonable

When close to half the companies in the Chemicals industry in Germany have price-to-sales ratios (or "P/S") below 0.7x, you may consider BRAIN Biotech AG (ETR:BNN) as a stock to potentially avoid with its 1.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for BRAIN Biotech

What Does BRAIN Biotech's Recent Performance Look Like?

With its revenue growth in positive territory compared to the declining revenue of most other companies, BRAIN Biotech has been doing quite well of late. Perhaps the market is expecting the company's future revenue growth to buck the trend of the industry, contributing to a higher P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, BRAIN Biotech would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 2.6%. This was backed up an excellent period prior to see revenue up by 50% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 14% per year as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 3.5% each year growth forecast for the broader industry.

With this information, we can see why BRAIN Biotech is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does BRAIN Biotech's P/S Mean For Investors?

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.

Our look into BRAIN Biotech shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for BRAIN Biotech that you should be aware of.

If these risks are making you reconsider your opinion on BRAIN Biotech, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.