There's No Escaping Avid Bioservices, Inc.'s (NASDAQ:CDMO) Muted Revenues Despite A 40% Share Price Rise

Avid Bioservices, Inc. (NASDAQ:CDMO) shares have continued their recent momentum with a 40% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 43% over that time.

In spite of the firm bounce in price, Avid Bioservices may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 3.9x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 15.6x and even P/S higher than 80x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for Avid Bioservices

What Does Avid Bioservices' Recent Performance Look Like?

Recent times haven't been great for Avid Bioservices as its revenue has been rising slower than most other companies. 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.

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

How Is Avid Bioservices' Revenue Growth Trending?

In order to justify its P/S ratio, Avid Bioservices would need to produce anemic growth that's substantially trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 5.0%. This was backed up an excellent period prior to see revenue up by 94% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 18% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 273% per year, which is noticeably more attractive.

With this in consideration, its clear as to why Avid Bioservices' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Avid Bioservices' P/S?

Shares in Avid Bioservices have risen appreciably however, its P/S is still subdued. 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.

As expected, our analysis of Avid Bioservices' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. 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.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Avid Bioservices you should know about.

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.