Further Upside For Aelis Farma SA (EPA:AELIS) Shares Could Introduce Price Risks After 68% Bounce

Those holding Aelis Farma SA (EPA:AELIS) shares would be relieved that the share price has rebounded 68% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 75% share price decline over the last year.

Even after such a large jump in price, it's still not a stretch to say that Aelis Farma's price-to-sales (or "P/S") ratio of 4.2x right now seems quite "middle-of-the-road" compared to the Biotechs industry in France, seeing as it matches the P/S ratio of the wider industry. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Aelis Farma

How Has Aelis Farma Performed Recently?

With revenue growth that's inferior to most other companies of late, Aelis Farma has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

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

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

If we review the last year of revenue growth, the company posted a worthy increase of 9.9%. 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.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 450% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 60%, which is noticeably less attractive.

With this information, we find it interesting that Aelis Farma is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

Aelis Farma appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Looking at Aelis Farma's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Aelis Farma (1 is concerning!) that you need to be mindful of.

If you're unsure about the strength of Aelis Farma's 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.