MediWound Ltd. (NASDAQ:MDWD) Stock Rockets 26% As Investors Are Less Pessimistic Than Expected
MediWound Ltd. (NASDAQ:MDWD) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Looking further back, the 12% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.
After such a large jump in price, MediWound's price-to-sales (or "P/S") ratio of 3.9x might make it look like a sell right now compared to the wider Pharmaceuticals industry in the United States, where around half of the companies have P/S ratios below 3.1x and even P/S below 0.7x are quite common. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for MediWound
What Does MediWound's Recent Performance Look Like?
MediWound could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Want the full picture on analyst estimates for the company? Then our free report on MediWound will help you uncover what's on the horizon.
What Are Revenue Growth Metrics Telling Us About The High P/S?
In order to justify its P/S ratio, MediWound would need to produce impressive growth in excess of the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 23%. As a result, it also grew revenue by 22% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.
Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 31% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 53% per year, which is noticeably more attractive.
With this information, we find it concerning that MediWound is trading at a P/S higher than the industry. 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 MediWound's P/S
The large bounce in MediWound's shares has lifted the company's P/S handsomely. 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.
Despite analysts forecasting some poorer-than-industry revenue growth figures for MediWound, this doesn't appear to be impacting the P/S in the slightest. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. 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 2 warning signs for MediWound (1 makes us a bit uncomfortable) you should be aware of.
If these risks are making you reconsider your opinion on MediWound, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.
