Why Investors Shouldn't Be Surprised By Pieris Pharmaceuticals, Inc.'s (NASDAQ:PIRS) 41% Share Price Plunge

The Pieris Pharmaceuticals, Inc. (NASDAQ:PIRS) share price has fared very poorly over the last month, falling by a substantial 41%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 77% loss during that time.

Following the heavy fall in price, Pieris Pharmaceuticals may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.1x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 11.5x and even P/S higher than 50x are not unusual. 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 Pieris Pharmaceuticals

How Has Pieris Pharmaceuticals Performed Recently?

While the industry has experienced revenue growth lately, Pieris Pharmaceuticals' revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as depressed as Pieris Pharmaceuticals' is when the company's growth is on track to lag the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 18%. The last three years don't look nice either as the company has shrunk revenue by 44% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to slump, contracting by 32% per year during the coming three years according to the one analyst following the company. With the industry predicted to deliver 92% growth per year, that's a disappointing outcome.

With this in consideration, we find it intriguing that Pieris Pharmaceuticals' P/S is closely matching its industry peers. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

Having almost fallen off a cliff, Pieris Pharmaceuticals' share price has pulled its P/S way down as well. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It's clear to see that Pieris Pharmaceuticals maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. As other companies in the industry are forecasting revenue growth, Pieris Pharmaceuticals' poor outlook justifies its low P/S ratio. 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 5 warning signs for Pieris Pharmaceuticals (2 are potentially serious!) that we have uncovered.

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.