Bonesupport Holding AB (publ)'s (STO:BONEX) Shares May Have Run Too Fast Too Soon

Bonesupport Holding AB (publ)'s (STO:BONEX) price-to-sales (or "P/S") ratio of 18.3x might make it look like a sell right now compared to the Biotechs industry in Sweden, where around half of the companies have P/S ratios below 13.3x and even P/S below 6x are quite common. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Bonesupport Holding

What Does Bonesupport Holding's P/S Mean For Shareholders?

Bonesupport Holding could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For Bonesupport Holding?

The only time you'd be truly comfortable seeing a P/S as high as Bonesupport Holding's is when the company's growth is on track to outshine the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 45%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 33% per year during the coming three years according to the four analysts following the company. With the industry predicted to deliver 36% growth per year, the company is positioned for a comparable revenue result.

With this in consideration, we find it intriguing that Bonesupport Holding's P/S is higher than its industry peers. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

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.

Given Bonesupport Holding's future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising. When we see revenue growth that just matches the industry, we don't expect elevates P/S figures to remain inflated for the long-term. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.

Having said that, be aware Bonesupport Holding is showing 2 warning signs in our investment analysis, you should know about.

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.