Genfit S.A.'s (EPA:GNFT) Price Is Right But Growth Is Lacking After Shares Rocket 28%

The Genfit S.A. (EPA:GNFT) share price has done very well over the last month, posting an excellent gain of 28%. Notwithstanding the latest gain, the annual share price return of 7.5% isn't as impressive.

Even after such a large jump in price, Genfit may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 6x, considering almost half of all companies in the Biotechs industry in France have P/S ratios greater than 8.9x and even P/S higher than 17x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Genfit

What Does Genfit's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Genfit has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Is There Any Revenue Growth Forecasted For Genfit?

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

Taking a look back first, we see that the company grew revenue by an impressive 31% last year. The latest three year period has also seen an excellent 297% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 45% per annum as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 72% per year, which is noticeably more attractive.

With this information, we can see why Genfit is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does Genfit's P/S Mean For Investors?

Despite Genfit's share price climbing recently, its P/S still lags most other 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.

We've established that Genfit maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Genfit with six simple checks on some of these key factors.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.