Probi AB (publ)'s (STO:PROB) Price Is Right But Growth Is Lacking After Shares Rocket 31%

The Probi AB (publ) (STO:PROB) share price has done very well over the last month, posting an excellent gain of 31%. Looking back a bit further, it's encouraging to see the stock is up 72% in the last year.

In spite of the firm bounce in price, Probi may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 6.3x, since almost half of all companies in the Biotechs industry in Sweden have P/S ratios greater than 11.8x and even P/S higher than 27x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Probi

What Does Probi's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Probi has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

Do Revenue Forecasts Match The Low P/S Ratio?

Probi's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. This isn't what shareholders were looking for as it means they've been left with a 6.3% decline in revenue over the last three years in total. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 4.2% over the next year. That's shaping up to be materially lower than the 77% growth forecast for the broader industry.

In light of this, it's understandable that Probi's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

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

Despite Probi's share price climbing recently, its P/S still lags most other companies. 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.

We've established that Probi maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 1 warning sign for Probi that we have uncovered.

If you're unsure about the strength of Probi's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.