Lacklustre Performance Is Driving NIOX Group Plc's (LON:NIOX) Low P/S
You may think that with a price-to-sales (or "P/S") ratio of 7.2x NIOX Group Plc (LON:NIOX) is definitely a stock worth checking out, seeing as almost half of all the Biotechs companies in the United Kingdom have P/S ratios greater than 20x and even P/S above 130x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.
View our latest analysis for NIOX Group
What Does NIOX Group's P/S Mean For Shareholders?
Recent times haven't been great for NIOX Group as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. 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 NIOX Group.
How Is NIOX Group's Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as depressed as NIOX Group's is when the company's growth is on track to lag the industry decidedly.
Retrospectively, the last year delivered a decent 12% gain to the company's revenues. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 9.5% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 14% per year over the next three years. That's shaping up to be materially lower than the 35% per year growth forecast for the broader industry.
With this information, we can see why NIOX Group 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.
The Key Takeaway
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 NIOX Group 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
We don't want to rain on the parade too much, but we did also find 4 warning signs for NIOX Group (1 is concerning!) that you need to be mindful 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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