Revenues Not Telling The Story For BioArctic AB (publ) (STO:BIOA B) After Shares Rise 26%

Explore BioArctic's Fair Values from the Community and select yours

Despite an already strong run, BioArctic AB (publ) (STO:BIOA B) shares have been powering on, with a gain of 26% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 54% in the last year.

Although its price has surged higher, it's still not a stretch to say that BioArctic's price-to-sales (or "P/S") ratio of 13.6x right now seems quite "middle-of-the-road" compared to the Biotechs industry in Sweden, where the median P/S ratio is around 11.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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View our latest analysis for BioArctic

How BioArctic Has Been Performing

Recent times have been advantageous for BioArctic as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

How Is BioArctic's Revenue Growth Trending?

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

If we review the last year of revenue growth, we see the company's revenues grew exponentially. The amazing performance means it was also able to deliver huge revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 13% per year during the coming three years according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 38% per year, which is noticeably more attractive.

With this in mind, we find it intriguing that BioArctic's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

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

Its shares have lifted substantially and now BioArctic's P/S is back within range of the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

When you consider that BioArctic's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Plus, you should also learn about these 2 warning signs we've spotted with BioArctic.

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.

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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.