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Aytu BioPharma, Inc. (NASDAQ:AYTU) Shares Fly 28% But Investors Aren't Buying For Growth
Aytu BioPharma, Inc. (NASDAQ:AYTU) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 32% in the last twelve months.
In spite of the firm bounce in price, Aytu BioPharma's price-to-sales (or "P/S") ratio of 0.1x might still make it look like a strong buy right now compared to the wider Pharmaceuticals industry in the United States, where around half of the companies have P/S ratios above 3.1x and even P/S above 13x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for Aytu BioPharma
What Does Aytu BioPharma's P/S Mean For Shareholders?
Aytu BioPharma hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
Keen to find out how analysts think Aytu BioPharma's future stacks up against the industry? In that case, our free report is a great place to start.What Are Revenue Growth Metrics Telling Us About The Low P/S?
The only time you'd be truly comfortable seeing a P/S as depressed as Aytu BioPharma's is when the company's growth is on track to lag the industry decidedly.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 18%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 7.8% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.
Shifting to the future, estimates from the only analyst covering the company suggest revenue growth is heading into negative territory, declining 12% over the next year. Meanwhile, the broader industry is forecast to expand by 25%, which paints a poor picture.
In light of this, it's understandable that Aytu BioPharma's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
The Bottom Line On Aytu BioPharma's P/S
Aytu BioPharma's recent share price jump still sees fails to bring its P/S alongside the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Aytu BioPharma's P/S is on the lower end of the spectrum. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.
Before you take the next step, you should know about the 1 warning sign for Aytu BioPharma that we have uncovered.
If these risks are making you reconsider your opinion on Aytu BioPharma, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.
About NasdaqCM:AYTU
Aytu BioPharma
A pharmaceutical company, focuses on commercializing novel therapeutics drugs in the United States and internationally.
Adequate balance sheet and fair value.