ORGANIC Farma Zdrowia S.A.'s (WSE:ORG) 46% Price Boost Is Out Of Tune With Revenues

ORGANIC Farma Zdrowia S.A. (WSE:ORG) shareholders are no doubt pleased to see that the share price has bounced 46% in the last month, although it is still struggling to make up recently lost ground. Taking a wider view, although not as strong as the last month, the full year gain of 18% is also fairly reasonable.

In spite of the firm bounce in price, there still wouldn't be many who think ORGANIC Farma Zdrowia's price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S in Poland's Consumer Retailing industry is similar at about 0.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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.

Check out our latest analysis for ORGANIC Farma Zdrowia

How Has ORGANIC Farma Zdrowia Performed Recently?

The revenue growth achieved at ORGANIC Farma Zdrowia over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Although there are no analyst estimates available for ORGANIC Farma Zdrowia, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For ORGANIC Farma Zdrowia?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 10% last year. Revenue has also lifted 21% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 10.0% shows it's noticeably less attractive.

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

What We Can Learn From ORGANIC Farma Zdrowia's P/S?

Its shares have lifted substantially and now ORGANIC Farma Zdrowia's P/S is back within range of the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of ORGANIC Farma Zdrowia revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

You need to take note of risks, for example - ORGANIC Farma Zdrowia has 4 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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).

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.