Investors Don't See Light At End Of CollPlant Biotechnologies Ltd.'s (NASDAQ:CLGN) Tunnel
With a price-to-sales (or "P/S") ratio of 7.4x CollPlant Biotechnologies Ltd. (NASDAQ:CLGN) may be sending bullish signals at the moment, given that almost half of all the Biotechs companies in the United States have P/S ratios greater than 11.8x and even P/S higher than 53x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for CollPlant Biotechnologies
What Does CollPlant Biotechnologies' P/S Mean For Shareholders?
Recent times have been advantageous for CollPlant Biotechnologies as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Want the full picture on analyst estimates for the company? Then our free report on CollPlant Biotechnologies will help you uncover what's on the horizon.
How Is CollPlant Biotechnologies' Revenue Growth Trending?
There's an inherent assumption that a company should underperform the industry for P/S ratios like CollPlant Biotechnologies' to be considered reasonable.
Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. The amazing performance means it was also able to deliver huge revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.
Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 26% per year over the next three years. That's shaping up to be materially lower than the 125% per annum growth forecast for the broader industry.
With this information, we can see why CollPlant Biotechnologies 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 Key Takeaway
Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We've established that CollPlant Biotechnologies maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.
You should always think about risks. Case in point, we've spotted 2 warning signs for CollPlant Biotechnologies you should be aware of.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.
