Some Adocia SA (EPA:ADOC) Shareholders Look For Exit As Shares Take 26% Pounding

Adocia SA (EPA:ADOC) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. The last month has meant the stock is now only up 4.5% during the last year.

Although its price has dipped substantially, Adocia may still be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 9.3x, since almost half of all companies in the Biotechs industry in France have P/S ratios under 5.5x and even P/S lower than 1.5x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

View our latest analysis for Adocia

How Adocia Has Been Performing

Adocia certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

How Is Adocia's Revenue Growth Trending?

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

Retrospectively, the last year delivered an explosive gain to the company's top line. However, this wasn't enough as the latest three year period has seen the company endure a nasty 7.7% drop in revenue in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 4.6% per year during the coming three years according to the lone analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 248% per year, which is noticeably more attractive.

With this in consideration, we believe it doesn't make sense that Adocia's P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Final Word

Adocia's shares may have suffered, but its P/S remains high. 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.

It comes as a surprise to see Adocia trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.

And what about other risks? Every company has them, and we've spotted 5 warning signs for Adocia (of which 2 make us uncomfortable!) you should know about.

If these risks are making you reconsider your opinion on Adocia, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.