ADMA Biologics, Inc. (NASDAQ:ADMA) Stock Rockets 25% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, ADMA Biologics, Inc. (NASDAQ:ADMA) shares have been powering on, with a gain of 25% in the last thirty days. The last month tops off a massive increase of 271% in the last year.

In spite of the firm bounce in price, it's still not a stretch to say that ADMA Biologics' price-to-sales (or "P/S") ratio of 11.3x right now seems quite "middle-of-the-road" compared to the Biotechs industry in the United States, where the median P/S ratio is around 11.4x. 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.

View our latest analysis for ADMA Biologics

What Does ADMA Biologics' P/S Mean For Shareholders?

ADMA Biologics could be doing better as it's been growing revenue less than most other companies lately. 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.

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

Is There Some Revenue Growth Forecasted For ADMA Biologics?

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

Taking a look back first, we see that the company grew revenue by an impressive 56% last year. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 21% each year over the next three years. With the industry predicted to deliver 204% growth each year, the company is positioned for a weaker revenue result.

With this information, we find it interesting that ADMA Biologics is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What Does ADMA Biologics' P/S Mean For Investors?

ADMA Biologics appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Given that ADMA Biologics' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it 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. 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.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for ADMA Biologics that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

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