Pharma Mar, S.A.'s (BME:PHM) Price Is Right But Growth Is Lacking After Shares Rocket 55%

Pharma Mar, S.A. (BME:PHM) shares have continued their recent momentum with a 55% gain in the last month alone. The last month tops off a massive increase of 103% in the last year.

Although its price has surged higher, Pharma Mar may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 7.3x, since almost half of all companies in the Biotechs industry in Spain have P/S ratios greater than 9.1x and even P/S higher than 26x 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 Pharma Mar

What Does Pharma Mar's Recent Performance Look Like?

Pharma Mar 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. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is Pharma Mar's Revenue Growth Trending?

Pharma Mar's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 9.3%. As a result, revenue from three years ago have also fallen 20% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 18% per year as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 45% per year, which is noticeably more attractive.

In light of this, it's understandable that Pharma Mar's 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 We Can Learn From Pharma Mar's P/S?

Pharma Mar's stock price has surged recently, but its but its P/S still remains modest. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Pharma Mar's 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 1 warning sign for Pharma Mar you should be aware of.

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.