Sartorius Stedim Biotech S.A.'s (EPA:DIM) Share Price Not Quite Adding Up

Sartorius Stedim Biotech S.A.'s (EPA:DIM) price-to-sales (or "P/S") ratio of 6.8x might make it look like a sell right now compared to the Life Sciences industry in France, where around half of the companies have P/S ratios below 4.8x and even P/S below 2x 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 as high as it is.

Check out our latest analysis for Sartorius Stedim Biotech

How Has Sartorius Stedim Biotech Performed Recently?

Sartorius Stedim Biotech 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. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Sartorius Stedim Biotech's Revenue Growth Trending?

In order to justify its P/S ratio, Sartorius Stedim Biotech would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a frustrating 13% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 15% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 9.6% per annum as estimated by the analysts watching the company. With the industry predicted to deliver 11% growth per year, the company is positioned for a comparable revenue result.

With this information, we find it interesting that Sartorius Stedim Biotech is trading at a high P/S compared to the industry. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

The Bottom Line On Sartorius Stedim Biotech's P/S

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Seeing as its revenues are forecast to grow in line with the wider industry, it would appear that Sartorius Stedim Biotech currently trades on a higher than expected P/S. When we see revenue growth that just matches the industry, we don't expect elevates P/S figures to remain inflated for the long-term. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.

Before you settle on your opinion, we've discovered 4 warning signs for Sartorius Stedim Biotech (1 shouldn't be ignored!) that you should be aware of.

If you're unsure about the strength of Sartorius Stedim Biotech'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.