Further Upside For Solara Active Pharma Sciences Limited (NSE:SOLARA) Shares Could Introduce Price Risks After 30% Bounce

Solara Active Pharma Sciences Limited (NSE:SOLARA) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. The last 30 days bring the annual gain to a very sharp 43%.

Even after such a large jump in price, Solara Active Pharma Sciences' price-to-sales (or "P/S") ratio of 2x might still make it look like a buy right now compared to the Pharmaceuticals industry in India, where around half of the companies have P/S ratios above 3x and even P/S above 6x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Solara Active Pharma Sciences

What Does Solara Active Pharma Sciences' Recent Performance Look Like?

Solara Active Pharma Sciences hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Solara Active Pharma Sciences.

Is There Any Revenue Growth Forecasted For Solara Active Pharma Sciences?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Solara Active Pharma Sciences' to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 11%. This means it has also seen a slide in revenue over the longer-term as revenue is down 20% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 14% each year during the coming three years according to the only analyst following the company. With the industry only predicted to deliver 10% per annum, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that Solara Active Pharma Sciences' P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Solara Active Pharma Sciences' P/S?

Solara Active Pharma Sciences' stock price has surged recently, but its but its P/S still remains modest. 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.

A look at Solara Active Pharma Sciences' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Before you take the next step, you should know about the 3 warning signs for Solara Active Pharma Sciences (1 can't be ignored!) that we have uncovered.

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).

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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.

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