Market Cool On Solara Active Pharma Sciences Limited's (NSE:SOLARA) Revenues Pushing Shares 25% Lower

Unfortunately for some shareholders, the Solara Active Pharma Sciences Limited (NSE:SOLARA) share price has dived 25% in the last thirty days, prolonging recent pain. Looking at the bigger picture, even after this poor month the stock is up 30% in the last year.

Since its price has dipped substantially, Solara Active Pharma Sciences may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.8x, considering almost half of all companies in the Pharmaceuticals industry in India have P/S ratios greater than 2.8x and even P/S higher than 6x 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.

Check out 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 you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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 6.9%. The last three years don't look nice either as the company has shrunk revenue by 3.1% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 26% during the coming year according to the lone analyst following the company. That's shaping up to be materially higher than the 14% growth forecast for the broader industry.

With this information, we find it odd that Solara Active Pharma Sciences is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Solara Active Pharma Sciences' P/S

The southerly movements of Solara Active Pharma Sciences' shares means its P/S is now sitting at a pretty low level. 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.

To us, it seems Solara Active Pharma Sciences currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. 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.

Plus, you should also learn about this 1 warning sign we've spotted with Solara Active Pharma Sciences.

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.