Sartorius Stedim Biotech S.A.'s (EPA:DIM) Shareholders Might Be Looking For Exit

Sartorius Stedim Biotech S.A.'s (EPA:DIM) price-to-sales (or "P/S") ratio of 7.6x might make it look like a strong sell right now compared to the Life Sciences industry in France, where around half of the companies have P/S ratios below 4.2x 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 so lofty.

See our latest analysis for Sartorius Stedim Biotech

What Does Sartorius Stedim Biotech's Recent Performance Look Like?

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.

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

Is There Enough Revenue Growth Forecasted For Sartorius Stedim Biotech?

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

Retrospectively, the last year delivered a frustrating 7.5% decrease to the company's top line. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue should grow by 10% per annum over the next three years. With the industry predicted to deliver 12% growth per annum, 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. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Given Sartorius Stedim Biotech's future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising. Right now we are uncomfortable with the relatively high share price as the predicted future revenues aren't likely to support such positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

You need to take note of risks, for example - Sartorius Stedim Biotech has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

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.