Evrofarma SA (ATH:EVROF) Stock Rockets 33% But Many Are Still Ignoring The Company

Despite an already strong run, Evrofarma SA (ATH:EVROF) shares have been powering on, with a gain of 33% in the last thirty days. The last 30 days bring the annual gain to a very sharp 91%.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Evrofarma's P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Food industry in Greece is also close to 0.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Evrofarma

What Does Evrofarma's P/S Mean For Shareholders?

Evrofarma has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Although there are no analyst estimates available for Evrofarma, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Evrofarma's Revenue Growth Trending?

In order to justify its P/S ratio, Evrofarma would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 27% gain to the company's top line. The latest three year period has also seen an excellent 55% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 1.4% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Evrofarma is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On Evrofarma's P/S

Evrofarma appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We didn't quite envision Evrofarma's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Evrofarma (1 is potentially serious) you should be aware of.

If you're unsure about the strength of Evrofarma'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.