Evotec SE (ETR:EVT) Stock's 45% Dive Might Signal An Opportunity But It Requires Some Scrutiny

The Evotec SE (ETR:EVT) share price has fared very poorly over the last month, falling by a substantial 45%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 75% loss during that time.

Following the heavy fall in price, Evotec's price-to-sales (or "P/S") ratio of 1.2x might make it look like a strong buy right now compared to the wider Life Sciences industry in Germany, where around half of the companies have P/S ratios above 4.7x and even P/S above 12x are quite common. 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.

View our latest analysis for Evotec

What Does Evotec's Recent Performance Look Like?

Evotec hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Want the full picture on analyst estimates for the company? Then our free report on Evotec will help you uncover what's on the horizon.

How Is Evotec's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 3.0% decrease to the company's top line. Even so, admirably revenue has lifted 51% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 15% each year as estimated by the twelve analysts watching the company. That's shaping up to be materially higher than the 11% per year growth forecast for the broader industry.

With this in consideration, we find it intriguing that Evotec's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Evotec's P/S

Evotec's P/S looks about as weak as its stock price lately. 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.

Evotec's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

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

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

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