Emergent BioSolutions Inc. (NYSE:EBS) Shares Fly 32% But Investors Aren't Buying For Growth

Emergent BioSolutions Inc. (NYSE:EBS) shares have continued their recent momentum with a 32% gain in the last month alone. The last 30 days were the cherry on top of the stock's 489% gain in the last year, which is nothing short of spectacular.

In spite of the firm bounce in price, Emergent BioSolutions may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.6x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 12.6x and even P/S higher than 66x 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.

View our latest analysis for Emergent BioSolutions

How Emergent BioSolutions Has Been Performing

Emergent BioSolutions could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 32% drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 4.3% during the coming year according to the lone analyst following the company. With the industry predicted to deliver 52% growth, the company is positioned for a weaker revenue result.

With this information, we can see why Emergent BioSolutions is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Emergent BioSolutions' P/S

Even after such a strong price move, Emergent BioSolutions' P/S still trails the rest of the industry. 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 Emergent BioSolutions' analyst forecasts revealed that its inferior revenue outlook is contributing 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. The company will need a change of fortune to justify the P/S rising higher in the future.

You should always think about risks. Case in point, we've spotted 2 warning signs for Emergent BioSolutions you should be aware of, and 1 of them can't be ignored.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.