Yahoo Finance Getting In Cheap On Molecular Partners AG (VTX:MOLN) Is Unlikely
Molecular Partners AG's (VTX:MOLN) price-to-sales (or "P/S") ratio of 10.1x might make it look like a sell right now compared to the Biotechs industry in Switzerland, where around half of the companies have P/S ratios below 7.3x and even P/S below 1.7x are quite common. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for Molecular Partners
How Has Molecular Partners Performed Recently?
Molecular Partners 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 might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.
Keen to find out how analysts think Molecular Partners' future stacks up against the industry? In that case, our free report is a great place to start.
Is There Enough Revenue Growth Forecasted For Molecular Partners?
In order to justify its P/S ratio, Molecular Partners would need to produce impressive growth in excess of the industry.
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 89%. Regardless, revenue has managed to lift by a handy 14% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.
Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 25% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 65% per year, which is noticeably more attractive.
With this in consideration, we believe it doesn't make sense that Molecular Partners' P/S is outpacing its industry peers. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.
The Bottom Line On Molecular Partners' P/S
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.
Despite analysts forecasting some poorer-than-industry revenue growth figures for Molecular Partners, this doesn't appear to be impacting the P/S in the slightest. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Molecular Partners that you should be aware of.
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.
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