Bavarian Nordic A/S' (CPH:BAVA) Business And Shares Still Trailing The Industry

You may think that with a price-to-sales (or "P/S") ratio of 2.4x Bavarian Nordic A/S (CPH:BAVA) is definitely a stock worth checking out, seeing as almost half of all the Biotechs companies in Denmark have P/S ratios greater than 8.1x and even P/S above 36x aren't out of the ordinary. 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.

See our latest analysis for Bavarian Nordic

What Does Bavarian Nordic's P/S Mean For Shareholders?

Recent times have been advantageous for Bavarian Nordic as its revenues have been rising faster than most other companies. 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 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.

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

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Bavarian Nordic would need to produce anemic growth that's substantially trailing the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 146%. The strong recent performance means it was also able to grow revenue by 209% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to slump, contracting by 3.9% per year during the coming three years according to the six analysts following the company. That's not great when the rest of the industry is expected to grow by 49% per year.

In light of this, it's understandable that Bavarian Nordic's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

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 we suspected, our examination of Bavarian Nordic's analyst forecasts revealed that its outlook for shrinking revenue is contributing 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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Bavarian Nordic (1 makes us a bit uncomfortable) you should be aware of.

If these risks are making you reconsider your opinion on Bavarian Nordic, 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.