Why Investors Shouldn't Be Surprised By MedinCell S.A.'s (EPA:MEDCL) 30% Share Price Surge

The MedinCell S.A. (EPA:MEDCL) share price has done very well over the last month, posting an excellent gain of 30%. Looking back a bit further, it's encouraging to see the stock is up 43% in the last year.

Since its price has surged higher, given around half the companies in France's Pharmaceuticals industry have price-to-sales ratios (or "P/S") below 1.7x, you may consider MedinCell as a stock to avoid entirely with its 26.9x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for MedinCell

How Has MedinCell Performed Recently?

Recent times have been advantageous for MedinCell as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on MedinCell.

Is There Enough Revenue Growth Forecasted For MedinCell?

MedinCell's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered an exceptional 132% gain to the company's top line. Pleasingly, revenue has also lifted 233% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 70% each year during the coming three years according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 4.3% each year, which is noticeably less attractive.

With this information, we can see why MedinCell is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On MedinCell's P/S

The strong share price surge has lead to MedinCell's P/S soaring as well. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look into MedinCell shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 1 warning sign for MedinCell that you need to take into consideration.

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.

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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.