Investors Don't See Light At End Of Mabion S.A.'s (WSE:MAB) Tunnel And Push Stock Down 30%

Mabion S.A. (WSE:MAB) shareholders that were waiting for something to happen have been dealt a blow with a 30% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 35% in that time.

Even after such a large drop in price, Mabion may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.7x, since almost half of all companies in the Biotechs industry in Poland have P/S ratios greater than 10.9x and even P/S higher than 42x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for Mabion

What Does Mabion's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Mabion's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Want the full picture on analyst estimates for the company? Then our free report on Mabion will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Mabion?

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

Retrospectively, the last year delivered a frustrating 25% decrease to the company's top line. In spite of this, the company still managed to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company, but investors will want to ask why it is now in decline.

Shifting to the future, estimates from the three analysts covering the company suggest revenue growth is heading into negative territory, declining 15% per year over the next three years. That's not great when the rest of the industry is expected to grow by 45% each year.

With this information, we are not surprised that Mabion is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

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

Having almost fallen off a cliff, Mabion's share price has pulled its P/S way down as well. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Mabion's P/S is on the lower end of the spectrum. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 4 warning signs for Mabion (1 shouldn't be ignored!) that you should be aware of.

If these risks are making you reconsider your opinion on Mabion, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.