What ArcticZymes Technologies ASA's (OB:AZT) 50% Share Price Gain Is Not Telling You

ArcticZymes Technologies ASA (OB:AZT) shareholders have had their patience rewarded with a 50% share price jump in the last month. Unfortunately, despite the strong performance over the last month, the full year gain of 5.2% isn't as attractive.

Following the firm bounce in price, ArcticZymes Technologies may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 12.5x, when you consider almost half of the companies in the Biotechs industry in Norway have P/S ratios under 8x and even P/S lower than 2x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

View our latest analysis for ArcticZymes Technologies

What Does ArcticZymes Technologies' Recent Performance Look Like?

While the industry has experienced revenue growth lately, ArcticZymes Technologies' revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on ArcticZymes Technologies.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, ArcticZymes Technologies would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 13%. The last three years don't look nice either as the company has shrunk revenue by 26% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 19% each year during the coming three years according to the dual analysts following the company. That's shaping up to be materially lower than the 27% per year growth forecast for the broader industry.

In light of this, it's alarming that ArcticZymes Technologies' P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What We Can Learn From ArcticZymes Technologies' P/S?

ArcticZymes Technologies' P/S has grown nicely over the last month thanks to a handy boost in the 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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for ArcticZymes Technologies, this doesn't appear to be impacting the P/S in the slightest. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. At these price levels, investors should remain cautious, particularly if things don't improve.

We don't want to rain on the parade too much, but we did also find 2 warning signs for ArcticZymes Technologies that you need to be mindful of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.