Investors Still Aren't Entirely Convinced By Saudi Pharmaceutical Industries and Medical Appliances Corporation's (TADAWUL:2070) Revenues Despite 27% Price Jump

Saudi Pharmaceutical Industries and Medical Appliances Corporation (TADAWUL:2070) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 8.4% over the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Saudi Pharmaceutical Industries and Medical Appliances' P/S ratio of 2.5x, since the median price-to-sales (or "P/S") ratio for the Pharmaceuticals industry in Saudi Arabia is about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Saudi Pharmaceutical Industries and Medical Appliances

What Does Saudi Pharmaceutical Industries and Medical Appliances' Recent Performance Look Like?

Saudi Pharmaceutical Industries and Medical Appliances could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Saudi Pharmaceutical Industries and Medical Appliances.

What Are Revenue Growth Metrics Telling Us About The P/S?

In order to justify its P/S ratio, Saudi Pharmaceutical Industries and Medical Appliances would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 6.0% decrease to the company's top line. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 14% per annum over the next three years. With the industry only predicted to deliver 9.1% each year, the company is positioned for a stronger revenue result.

In light of this, it's curious that Saudi Pharmaceutical Industries and Medical Appliances' P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Saudi Pharmaceutical Industries and Medical Appliances' P/S

Saudi Pharmaceutical Industries and Medical Appliances appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Despite enticing revenue growth figures that outpace the industry, Saudi Pharmaceutical Industries and Medical Appliances' P/S isn't quite what we'd expect. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Before you settle on your opinion, we've discovered 1 warning sign for Saudi Pharmaceutical Industries and Medical Appliances 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).

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.