Pharming Group N.V. (AMS:PHARM) Surges 26% Yet Its Low P/S Is No Reason For Excitement

Pharming Group N.V. (AMS:PHARM) shareholders have had their patience rewarded with a 26% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 92%.

In spite of the firm bounce in price, Pharming Group may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 3x, since almost half of all companies in the Biotechs industry in the Netherlands have P/S ratios greater than 9.3x and even P/S higher than 47x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Pharming Group

What Does Pharming Group's Recent Performance Look Like?

Recent times haven't been great for Pharming Group as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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Is There Any Revenue Growth Forecasted For Pharming Group?

In order to justify its P/S ratio, Pharming Group would need to produce anemic growth that's substantially trailing the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 22%. The latest three year period has also seen an excellent 68% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 8.0% per annum during the coming three years according to the five analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 25% each year, which is noticeably more attractive.

With this in consideration, its clear as to why Pharming Group's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Shares in Pharming Group have risen appreciably however, its P/S is still subdued. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Pharming Group maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 1 warning sign for Pharming Group that we have uncovered.

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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.