Aelis Farma SA (EPA:AELIS) Might Not Be As Mispriced As It Looks After Plunging 26%

To the annoyance of some shareholders, Aelis Farma SA (EPA:AELIS) shares are down a considerable 26% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 84% share price decline.

After such a large drop in price, Aelis Farma's price-to-sales (or "P/S") ratio of 2.8x might make it look like a buy right now compared to the Biotechs industry in France, where around half of the companies have P/S ratios above 3.9x and even P/S above 9x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Aelis Farma

How Aelis Farma Has Been Performing

Recent times haven't been great for Aelis Farma as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. 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 Aelis Farma's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Aelis Farma's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Aelis Farma's to be considered reasonable.

Retrospectively, the last year delivered a decent 9.9% gain to the company's revenues. Revenue has also lifted 19% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 450% during the coming year according to the only analyst following the company. With the industry only predicted to deliver 45%, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that Aelis Farma's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

Aelis Farma's recently weak share price has pulled its P/S back below other Biotechs companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Aelis Farma's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Aelis Farma that you need to be mindful of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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.