MorphoSys AG (ETR:MOR) Held Back By Insufficient Growth Even After Shares Climb 36%

MorphoSys AG (ETR:MOR) shareholders would be excited to see that the share price has had a great month, posting a 36% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 21% in the last twelve months.

In spite of the firm bounce in price, MorphoSys may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.3x, since almost half of all companies in the Biotechs industry in Germany have P/S ratios greater than 4.3x and even P/S higher than 38x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for MorphoSys

What Does MorphoSys' Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, MorphoSys has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

Is There Any Revenue Growth Forecasted For MorphoSys?

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

If we review the last year of revenue growth, the company posted a terrific increase of 55%. Pleasingly, revenue has also lifted 288% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 9.1% per annum over the next three years. With the industry predicted to deliver 47% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that MorphoSys' P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does MorphoSys' P/S Mean For Investors?

The latest share price surge wasn't enough to lift MorphoSys' P/S close to the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As expected, our analysis of MorphoSys' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 2 warning signs for MorphoSys that we have uncovered.

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.