More Unpleasant Surprises Could Be In Store For ArcticZymes Technologies ASA's (OB:AZT) Shares After Tumbling 28%

ArcticZymes Technologies ASA (OB:AZT) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. Still, a bad month hasn't completely ruined the past year with the stock gaining 65%, which is great even in a bull market.

Although its price has dipped substantially, it's still not a stretch to say that ArcticZymes Technologies' price-to-sales (or "P/S") ratio of 10.1x right now seems quite "middle-of-the-road" compared to the Biotechs industry in Norway, seeing as it matches the P/S ratio of the wider industry. 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.

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Check out our latest analysis for ArcticZymes Technologies

What Does ArcticZymes Technologies' Recent Performance Look Like?

With only a limited decrease in revenue compared to most other companies of late, ArcticZymes Technologies has been doing relatively well. Perhaps the market is expecting future revenue performance fall back in line with the poorer industry performance, which has kept the P/S contained. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. But at the very least, you'd be hoping the company doesn't fall back into the pack if your plan is to pick up some stock while it's not in favour.

Keen to find out how analysts think ArcticZymes Technologies' future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like ArcticZymes Technologies' to be considered reasonable.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 27% drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 22% as estimated by the dual analysts watching the company. With the industry predicted to deliver 218% growth, the company is positioned for a weaker revenue result.

In light of this, it's curious that ArcticZymes Technologies' P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On ArcticZymes Technologies' P/S

Following ArcticZymes Technologies' share price tumble, its P/S is just clinging on to the industry median P/S. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

When you consider that ArcticZymes Technologies' revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. 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. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

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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.