Despite an already strong run, ADMA Biologics, Inc. (NASDAQ:ADMA) shares have been powering on, with a gain of 53% in the last thirty days. The annual gain comes to 136% following the latest surge, making investors sit up and take notice.
Even after such a large jump in price, ADMA Biologics may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 7.9x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 12.2x and even P/S higher than 66x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
NasdaqGM:ADMA Price to Sales Ratio vs Industry May 22nd 2024
How Has ADMA Biologics Performed Recently?
Recent times haven't been great for ADMA Biologics 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 this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on ADMA Biologics.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
There's an inherent assumption that a company should underperform the industry for P/S ratios like ADMA Biologics' to be considered reasonable.
Taking a look back first, we see that the company grew revenue by an impressive 56% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.
Turning to the outlook, the next three years should generate growth of 20% per year as estimated by the four analysts watching the company. That's shaping up to be materially lower than the 211% per annum growth forecast for the broader industry.
With this information, we can see why ADMA Biologics 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 Bottom Line On ADMA Biologics' P/S
ADMA Biologics' stock price has surged recently, but its but its P/S still remains modest. 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 ADMA Biologics maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.
We don't want to rain on the parade too much, but we did also find 1 warning sign for ADMA Biologics that you need to be mindful of.
If these risks are making you reconsider your opinion on ADMA Biologics, 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.