Emergent BioSolutions Inc.'s (NYSE:EBS) Shares Bounce 31% But Its Business Still Trails The Industry

The Emergent BioSolutions Inc. (NYSE:EBS) share price has done very well over the last month, posting an excellent gain of 31%. Notwithstanding the latest gain, the annual share price return of 7.6% isn't as impressive.

In spite of the firm bounce in price, Emergent BioSolutions' price-to-sales (or "P/S") ratio of 0.6x might still make it look like a strong buy right now compared to the wider Biotechs industry in the United States, where around half of the companies have P/S ratios above 10.2x and even P/S above 90x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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Check out our latest analysis for Emergent BioSolutions

How Has Emergent BioSolutions Performed Recently?

Emergent BioSolutions could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. 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.

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.

How Is Emergent BioSolutions' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Emergent BioSolutions' 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 23%. As a result, revenue from three years ago have also fallen 46% overall. 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 0.9% during the coming year according to the three analysts following the company. With the industry predicted to deliver 79% 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. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Emergent BioSolutions' P/S

Shares in Emergent BioSolutions have risen appreciably however, its P/S is still subdued. 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.

We've established that Emergent BioSolutions maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Emergent BioSolutions is showing 5 warning signs in our investment analysis, and 2 of those shouldn't be ignored.

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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.