Why Investors Shouldn't Be Surprised By SymBio Pharmaceuticals Limited's (TSE:4582) 28% Share Price Surge

SymBio Pharmaceuticals Limited (TSE:4582) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. But the last month did very little to improve the 52% share price decline over the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about SymBio Pharmaceuticals' P/S ratio of 2.1x, since the median price-to-sales (or "P/S") ratio for the Pharmaceuticals industry in Japan is also close to 1.9x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for SymBio Pharmaceuticals

What Does SymBio Pharmaceuticals' P/S Mean For Shareholders?

For instance, SymBio Pharmaceuticals' receding revenue in recent times would have to be some food for thought. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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 SymBio Pharmaceuticals' earnings, revenue and cash flow.

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

In order to justify its P/S ratio, SymBio Pharmaceuticals would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 50% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 20% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Comparing that to the industry, which is predicted to deliver 5.7% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

With this in consideration, it's clear to see why SymBio Pharmaceuticals' P/S matches up closely to its industry peers. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

The Bottom Line On SymBio Pharmaceuticals' P/S

SymBio Pharmaceuticals' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

It appears to us that SymBio Pharmaceuticals maintains its moderate P/S off the back of its recent three-year growth being in line with the wider industry forecast. With previous revenue trends that keep up with the current industry outlook, it's hard to justify the company's P/S ratio deviating much from it's current point. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

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

If you're unsure about the strength of SymBio Pharmaceuticals' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.