Indiva Limited's (CVE:NDVA) Shares Bounce 100% But Its Business Still Trails The Industry
Indiva Limited (CVE:NDVA) shares have had a really impressive month, gaining 100% after a shaky period beforehand. But the last month did very little to improve the 66% share price decline over the last year.
Although its price has surged higher, when close to half the companies operating in Canada's Pharmaceuticals industry have price-to-sales ratios (or "P/S") above 1x, you may still consider Indiva as an enticing stock to check out with its 0.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
See our latest analysis for Indiva
What Does Indiva's Recent Performance Look Like?
Recent times haven't been great for Indiva as its revenue has been rising slower than most other companies. 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 Indiva.
How Is Indiva's Revenue Growth Trending?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Indiva's to be considered reasonable.
If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. The latest three year period has seen an incredible overall rise in revenue, in spite of this mediocre revenue growth of late. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.
Turning to the outlook, the next year should generate growth of 2.8% as estimated by the lone analyst watching the company. With the industry predicted to deliver 5.0% growth, the company is positioned for a weaker revenue result.
With this information, we can see why Indiva 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.
What We Can Learn From Indiva's P/S?
The latest share price surge wasn't enough to lift Indiva's P/S close to the industry median. 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.
As we suspected, our examination of Indiva's 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. It's hard to see the share price rising strongly in the near future under these circumstances.
Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Indiva (3 are potentially serious) 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.
