Optimistic Investors Push Devyser Diagnostics AB (publ) (STO:DVYSR) Shares Up 27% But Growth Is Lacking

Devyser Diagnostics AB (publ) (STO:DVYSR) shareholders are no doubt pleased to see that the share price has bounced 27% 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 14% is also fairly reasonable.

In spite of the firm bounce in price, it's still not a stretch to say that Devyser Diagnostics' price-to-sales (or "P/S") ratio of 8.5x right now seems quite "middle-of-the-road" compared to the Biotechs industry in Sweden, where the median P/S ratio is around 8.9x. 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 Devyser Diagnostics

What Does Devyser Diagnostics' P/S Mean For Shareholders?

Recent times haven't been great for Devyser Diagnostics as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think Devyser Diagnostics' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Devyser Diagnostics' Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 22%. The strong recent performance means it was also able to grow revenue by 119% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 37% each year during the coming three years according to the four analysts following the company. With the industry predicted to deliver 79% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's curious that Devyser Diagnostics' P/S sits in line with the majority of other companies. 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.

The Bottom Line On Devyser Diagnostics' P/S

Its shares have lifted substantially and now Devyser Diagnostics' 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.

When you consider that Devyser Diagnostics' 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. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Devyser Diagnostics with six simple checks on some of these key factors.

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.