Market Might Still Lack Some Conviction On Bafna Pharmaceuticals Limited (NSE:BAFNAPH) Even After 29% Share Price Boost

Explore Bafna Pharmaceuticals's Fair Values from the Community and select yours

Bafna Pharmaceuticals Limited (NSE:BAFNAPH) shares have continued their recent momentum with a 29% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 40%.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Bafna Pharmaceuticals' P/S ratio of 1.8x, since the median price-to-sales (or "P/S") ratio for the Pharmaceuticals industry in India is also close to 2.3x. 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.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

See our latest analysis for Bafna Pharmaceuticals

How Bafna Pharmaceuticals Has Been Performing

For example, consider that Bafna Pharmaceuticals' financial performance has been pretty ordinary lately as revenue growth is non-existent. One possibility is that the P/S is moderate because investors think this benign revenue growth rate might not be enough to outperform the broader industry in the near future. If not, then existing shareholders may be feeling hopeful about the future direction of the share price.

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

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

Bafna Pharmaceuticals' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. However, a few strong years before that means that it was still able to grow revenue by an impressive 82% in total over the last three years. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

This is in contrast to the rest of the industry, which is expected to grow by 15% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Bafna Pharmaceuticals is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

What Does Bafna Pharmaceuticals' P/S Mean For Investors?

Its shares have lifted substantially and now Bafna Pharmaceuticals' P/S is back within range of the industry median. 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've established that Bafna Pharmaceuticals currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

It is also worth noting that we have found 2 warning signs for Bafna Pharmaceuticals (1 is potentially serious!) that you need to take into consideration.

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.