Why Investors Shouldn't Be Surprised By Swedish Orphan Biovitrum AB (publ)'s (STO:SOBI) Low P/S

Swedish Orphan Biovitrum AB (publ)'s (STO:SOBI) price-to-sales (or "P/S") ratio of 4.2x might make it look like a buy right now compared to the Biotechs industry in Sweden, where around half of the companies have P/S ratios above 7.4x and even P/S above 18x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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Check out our latest analysis for Swedish Orphan Biovitrum

How Swedish Orphan Biovitrum Has Been Performing

Swedish Orphan Biovitrum could be doing better as it's been growing revenue less than most other companies lately. 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.

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

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

There's an inherent assumption that a company should underperform the industry for P/S ratios like Swedish Orphan Biovitrum's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 9.5% last year. The latest three year period has also seen an excellent 57% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 11% per year during the coming three years according to the nine analysts following the company. That's shaping up to be materially lower than the 135% per year growth forecast for the broader industry.

In light of this, it's understandable that Swedish Orphan Biovitrum's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Swedish Orphan Biovitrum's P/S Mean For Investors?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Swedish Orphan Biovitrum's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 3 warning signs for Swedish Orphan Biovitrum 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).

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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.