Benign Growth For Biofrontera Inc. (NASDAQ:BFRI) Underpins Stock's 50% Plummet
To the annoyance of some shareholders, Biofrontera Inc. (NASDAQ:BFRI) shares are down a considerable 50% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 81% share price decline.
Since its price has dipped substantially, Biofrontera may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Pharmaceuticals industry in the United States have P/S ratios greater than 2.4x and even P/S higher than 16x 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 Biofrontera
How Has Biofrontera Performed Recently?
With revenue growth that's inferior to most other companies of late, Biofrontera has been relatively sluggish. 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.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Biofrontera.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
There's an inherent assumption that a company should far underperform the industry for P/S ratios like Biofrontera's to be considered reasonable.
Retrospectively, the last year delivered an exceptional 21% gain to the company's top line. The latest three year period has also seen an excellent 78% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 30% each year over the next three years. That's shaping up to be materially lower than the 38% each year growth forecast for the broader industry.
With this in consideration, its clear as to why Biofrontera's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
What Does Biofrontera's P/S Mean For Investors?
Having almost fallen off a cliff, Biofrontera's share price has pulled its P/S way down as well. 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.
We've established that Biofrontera maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.
Having said that, be aware Biofrontera is showing 3 warning signs in our investment analysis, and 1 of those is a bit concerning.
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.
