Market Might Still Lack Some Conviction On Balaxi Pharmaceuticals Limited (NSE:BALAXI) Even After 38% Share Price Boost

Balaxi Pharmaceuticals Limited (NSE:BALAXI) shareholders have had their patience rewarded with a 38% share price jump in the last month. Unfortunately, despite the strong performance over the last month, the full year gain of 5.2% isn't as attractive.

In spite of the firm bounce in price, Balaxi Pharmaceuticals may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 2.1x, considering almost half of all companies in the Healthcare industry in India have P/S ratios greater than 3.2x and even P/S higher than 7x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Balaxi Pharmaceuticals

What Does Balaxi Pharmaceuticals' Recent Performance Look Like?

For example, consider that Balaxi Pharmaceuticals' financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Balaxi Pharmaceuticals will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Balaxi Pharmaceuticals will help you shine a light on its historical performance.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Balaxi Pharmaceuticals would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 10% decrease to the company's top line. Even so, admirably revenue has lifted 104% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the industry, which is expected to grow by 24% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Balaxi Pharmaceuticals is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Despite Balaxi Pharmaceuticals' share price climbing recently, its P/S still lags most other companies. 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.

We're very surprised to see Balaxi Pharmaceuticals currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Balaxi Pharmaceuticals that you should be aware of.

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.