Puma Biotechnology, Inc. (NASDAQ:PBYI) Held Back By Insufficient Growth Even After Shares Climb 34%
Those holding Puma Biotechnology, Inc. (NASDAQ:PBYI) shares would be relieved that the share price has rebounded 34% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Notwithstanding the latest gain, the annual share price return of 7.9% isn't as impressive.
Although its price has surged higher, Puma Biotechnology may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.6x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 11.5x and even P/S higher than 50x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.
See our latest analysis for Puma Biotechnology
How Has Puma Biotechnology Performed Recently?
While the industry has experienced revenue growth lately, Puma Biotechnology's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Puma Biotechnology.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
Puma Biotechnology's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.
Retrospectively, the last year delivered a frustrating 9.9% decrease to the company's top line. As a result, revenue from three years ago have also fallen 16% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Looking ahead now, revenue is anticipated to climb by 3.5% per year during the coming three years according to the three analysts following the company. That's shaping up to be materially lower than the 92% per annum growth forecast for the broader industry.
With this in consideration, its clear as to why Puma Biotechnology'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 Puma Biotechnology's P/S Mean For Investors?
Shares in Puma Biotechnology have risen appreciably however, its P/S is still subdued. 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 Puma Biotechnology's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.
You should always think about risks. Case in point, we've spotted 5 warning signs for Puma Biotechnology you should be aware of, and 3 of them are 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.
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