There's No Escaping Panacea Biotec Limited's (NSE:PANACEABIO) Muted Revenues Despite A 40% Share Price Rise

Despite an already strong run, Panacea Biotec Limited (NSE:PANACEABIO) shares have been powering on, with a gain of 40% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 90% in the last year.

In spite of the firm bounce in price, Panacea Biotec may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 3.5x, considering almost half of all companies in the Biotechs industry in India have P/S ratios greater than 6.3x and even P/S higher than 15x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Panacea Biotec

How Has Panacea Biotec Performed Recently?

Revenue has risen firmly for Panacea Biotec recently, which is pleasing to see. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Panacea Biotec's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Panacea Biotec?

Panacea Biotec's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 14% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 13% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 144% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we understand why Panacea Biotec's P/S is lower than most of its industry peers. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From Panacea Biotec's P/S?

The latest share price surge wasn't enough to lift Panacea Biotec's P/S close to the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Panacea Biotec revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Panacea Biotec (1 doesn't sit too well with us) you should be aware of.

If these risks are making you reconsider your opinion on Panacea Biotec, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.