There's No Escaping Pharming Group N.V.'s (AMS:PHARM) Muted Revenues Despite A 29% Share Price Rise

Pharming Group N.V. (AMS:PHARM) shares have had a really impressive month, gaining 29% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 2.3% isn't as attractive.

Even after such a large jump in price, Pharming Group may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.2x, since almost half of all companies in the Biotechs industry in the Netherlands have P/S ratios greater than 7.4x and even P/S higher than 32x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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How Pharming Group Has Been Performing

Recent times haven't been great for Pharming Group as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. 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?

Pharming Group's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 24%. Pleasingly, revenue has also lifted 59% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 9.2% each year during the coming three years according to the five analysts following the company. That's shaping up to be materially lower than the 65% each year growth forecast for the broader industry.

With this information, we can see why Pharming Group is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Pharming Group's P/S?

Even after such a strong price move, Pharming Group's P/S still trails the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Pharming Group's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

Having said that, be aware Pharming Group is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Pharming Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.