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Cosmo Pharmaceuticals N.V. (VTX:COPN) Stocks Shoot Up 37% But Its P/S Still Looks Reasonable

Cosmo Pharmaceuticals N.V. (VTX:COPN) shareholders would be excited to see that the share price has had a great month, posting a 37% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 16% in the last twelve months.

Following the firm bounce in price, you could be forgiven for thinking Cosmo Pharmaceuticals is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 8.6x, considering almost half the companies in Switzerland's Pharmaceuticals industry have P/S ratios below 3.7x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Cosmo Pharmaceuticals

ps-multiple-vs-industry
ps-multiple-vs-industry

What Does Cosmo Pharmaceuticals' P/S Mean For Shareholders?

Cosmo Pharmaceuticals certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

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If you'd like to see what analysts are forecasting going forward, you should check out our free report on Cosmo Pharmaceuticals.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as steep as Cosmo Pharmaceuticals' is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 33%. The latest three year period has also seen an excellent 56% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 32% each year over the next three years. With the industry only predicted to deliver 0.5% each year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Cosmo Pharmaceuticals' P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

The strong share price surge has lead to Cosmo Pharmaceuticals' 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.

We've established that Cosmo Pharmaceuticals maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Pharmaceuticals industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 2 warning signs for Cosmo Pharmaceuticals that we have uncovered.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.