Why Investors Shouldn't Be Surprised By Ryvu Therapeutics S.A.'s (WSE:RVU) 30% Share Price Surge
Ryvu Therapeutics S.A. (WSE:RVU) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 40% in the last twelve months.
After such a large jump in price, given around half the companies in Poland's Life Sciences industry have price-to-sales ratios (or "P/S") below 3.4x, you may consider Ryvu Therapeutics as a stock to avoid entirely with its 7.6x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.
Check out our latest analysis for Ryvu Therapeutics
What Does Ryvu Therapeutics' Recent Performance Look Like?
Ryvu Therapeutics hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. If not, then existing shareholders may be extremely nervous about the viability of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ryvu Therapeutics.How Is Ryvu Therapeutics' Revenue Growth Trending?
There's an inherent assumption that a company should far outperform the industry for P/S ratios like Ryvu Therapeutics' to be considered reasonable.
Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Still, the latest three year period has seen an excellent 79% overall rise in revenue, in spite of its uninspiring short-term performance. Accordingly, shareholders will be pleased, but also have some questions to ponder about the last 12 months.
Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 23% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 11% per year, which is noticeably less attractive.
In light of this, it's understandable that Ryvu Therapeutics' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Final Word
The strong share price surge has lead to Ryvu Therapeutics' P/S soaring as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
As we suspected, our examination of Ryvu Therapeutics' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Ryvu Therapeutics with six simple checks on some of these key factors.
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.