Investors Give Avacta Group Plc (LON:AVCT) Shares A 26% Hiding

To the annoyance of some shareholders, Avacta Group Plc (LON:AVCT) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 52% loss during that time.

Since its price has dipped substantially, Avacta Group may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 13.7x, since almost half of all companies in the Biotechs industry in the United Kingdom have P/S ratios greater than 20.9x and even P/S higher than 126x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Avacta Group

What Does Avacta Group's Recent Performance Look Like?

There hasn't been much to differentiate Avacta Group's and the industry's revenue growth lately. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. Those who are bullish on Avacta Group will be hoping that this isn't the case.

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

How Is Avacta Group's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Avacta Group's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company grew revenue by an impressive 131% last year. The strong recent performance means it was also able to grow revenue by 245% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 22% per annum during the coming three years according to the three analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 14% each year, which is noticeably less attractive.

With this in consideration, we find it intriguing that Avacta Group's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Avacta Group's P/S?

Avacta Group's P/S has taken a dip along with its share price. 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.

To us, it seems Avacta Group currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Before you settle on your opinion, we've discovered 3 warning signs for Avacta Group (1 is a bit concerning!) that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.