Medicamen Biotech Limited's (NSE:MEDICAMEQ) P/S Is Still On The Mark Following 41% Share Price Bounce

Medicamen Biotech Limited (NSE:MEDICAMEQ) shareholders would be excited to see that the share price has had a great month, posting a 41% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 12% over that time.

Following the firm bounce in price, you could be forgiven for thinking Medicamen Biotech is a stock not worth researching with a price-to-sales ratios (or "P/S") of 4.1x, considering almost half the companies in India's Pharmaceuticals industry have P/S ratios below 3.3x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Medicamen Biotech

How Medicamen Biotech Has Been Performing

Revenue has risen firmly for Medicamen Biotech recently, which is pleasing to see. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

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

Medicamen Biotech's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 20%. The latest three year period has also seen an excellent 60% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 13% shows it's noticeably more attractive.

With this in consideration, it's not hard to understand why Medicamen Biotech's P/S is high relative to its industry peers. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On Medicamen Biotech's P/S

Medicamen Biotech's P/S is on the rise since its shares have risen strongly. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It's no surprise that Medicamen Biotech can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Medicamen Biotech (1 is significant!) that you should be aware of before investing here.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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.