Revenues Not Telling The Story For Farmacosmo S.p.A. (BIT:COSMO) After Shares Rise 34%

Those holding Farmacosmo S.p.A. (BIT:COSMO) shares would be relieved that the share price has rebounded 34% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Farmacosmo's P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Specialty Retail industry in Italy is about the same. 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.

See our latest analysis for Farmacosmo

How Farmacosmo Has Been Performing

While the industry has experienced revenue growth lately, Farmacosmo's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For Farmacosmo?

The only time you'd be comfortable seeing a P/S like Farmacosmo's is when the company's growth is tracking the industry closely.

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 5.0%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 22% in total. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 5.7% during the coming year according to the dual analysts following the company. With the industry predicted to deliver 19% growth, the company is positioned for a weaker revenue result.

With this information, we find it interesting that Farmacosmo is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What Does Farmacosmo's P/S Mean For Investors?

Its shares have lifted substantially and now Farmacosmo's P/S is back within range of the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look at the analysts forecasts of Farmacosmo's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Farmacosmo (1 is a bit unpleasant!) that you need to be mindful of.

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.