Photocure ASA's (OB:PHO) 26% Jump Shows Its Popularity With Investors

Despite an already strong run, Photocure ASA (OB:PHO) shares have been powering on, with a gain of 26% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 37% in the last twelve months.

Following the firm bounce in price, when almost half of the companies in Norway's Pharmaceuticals industry have price-to-sales ratios (or "P/S") below 3x, you may consider Photocure as a stock probably not worth researching with its 4x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Photocure

How Has Photocure Performed Recently?

Recent times have been advantageous for Photocure as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Photocure's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 21%. The strong recent performance means it was also able to grow revenue by 69% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 16% per annum as estimated by the dual analysts watching the company. That's shaping up to be materially higher than the 8.4% per annum growth forecast for the broader industry.

With this in mind, it's not hard to understand why Photocure's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Photocure's P/S Mean For Investors?

The large bounce in Photocure's shares has lifted the company's P/S handsomely. 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.

As we suspected, our examination of Photocure's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Photocure you should be aware of.

If you're unsure about the strength of Photocure's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.