Revenues Working Against Grifols, S.A.'s (BME:GRF) Share Price Following 27% Dive

Unfortunately for some shareholders, the Grifols, S.A. (BME:GRF) share price has dived 27% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 34% share price drop.

Although its price has dipped substantially, Grifols may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.8x, since almost half of all companies in the Biotechs industry in Spain have P/S ratios greater than 11.3x and even P/S higher than 34x are not unusual. 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.

Check out our latest analysis for Grifols

How Grifols Has Been Performing

Grifols could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

Is There Any Revenue Growth Forecasted For Grifols?

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

Retrospectively, the last year delivered an exceptional 18% gain to the company's top line. The latest three year period has also seen a 21% overall rise in revenue, aided extensively by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 7.1% each year over the next three years. With the industry predicted to deliver 87% growth each year, the company is positioned for a weaker revenue result.

With this information, we can see why Grifols is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Grifols' 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.

As we suspected, our examination of Grifols' analyst forecasts revealed that its inferior revenue outlook 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. The company will need a change of fortune to justify the P/S rising higher in the future.

Having said that, be aware Grifols is showing 3 warning signs in our investment analysis, and 2 of those don't sit too well with us.

If you're unsure about the strength of Grifols' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.