Take Care Before Jumping Onto ArcticZymes Technologies ASA (OB:AZT) Even Though It's 25% Cheaper

To the annoyance of some shareholders, ArcticZymes Technologies ASA (OB:AZT) shares are down a considerable 25% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 67% loss during that time.

In spite of the heavy fall in price, ArcticZymes Technologies' price-to-sales (or "P/S") ratio of 6x might still make it look like a buy right now compared to the Biotechs industry in Norway, where around half of the companies have P/S ratios above 10.2x and even P/S above 23x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for ArcticZymes Technologies

How ArcticZymes Technologies Has Been Performing

ArcticZymes Technologies has been doing a reasonable job lately as its revenue hasn't declined as much as most other companies. It might be that many expect the comparatively superior revenue performance to degrade substantially, which has repressed the P/S. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. In saying that, existing shareholders probably aren't pessimistic about the share price if the company's revenue continues outplaying the industry.

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 Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as ArcticZymes Technologies' is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 6.9%. The last three years don't look nice either as the company has shrunk revenue by 2.7% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 14% over the next year. That's shaping up to be materially higher than the 3.4% growth forecast for the broader industry.

In light of this, it's peculiar that ArcticZymes Technologies' P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

ArcticZymes Technologies' P/S has taken a dip along with its share price. 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.

ArcticZymes Technologies' analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for ArcticZymes Technologies that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.