Improved Revenues Required Before Gulf Pharmaceutical Industries P.S.C. (ADX:JULPHAR) Stock's 26% Jump Looks Justified

Simply Wall St · 10/16 11:46

The Gulf Pharmaceutical Industries P.S.C. (ADX:JULPHAR) share price has done very well over the last month, posting an excellent gain of 26%. The last 30 days bring the annual gain to a very sharp 55%.

Although its price has surged higher, Gulf Pharmaceutical Industries P.S.C's price-to-sales (or "P/S") ratio of 0.8x might still make it look like a buy right now compared to the Pharmaceuticals industry in the United Arab Emirates, where around half of the companies have P/S ratios above 2.7x and even P/S above 6x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Gulf Pharmaceutical Industries P.S.C

ps-multiple-vs-industry
ADX:JULPHAR Price to Sales Ratio vs Industry October 16th 2024

What Does Gulf Pharmaceutical Industries P.S.C's P/S Mean For Shareholders?

We'd have to say that with no tangible growth over the last year, Gulf Pharmaceutical Industries P.S.C's revenue has been unimpressive. It might be that many expect the uninspiring revenue performance to worsen, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Gulf Pharmaceutical Industries P.S.C will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Gulf Pharmaceutical Industries P.S.C?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Gulf Pharmaceutical Industries P.S.C's to be considered reasonable.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. However, a few strong years before that means that it was still able to grow revenue by an impressive 144% in total over the last three years. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

Comparing that to the industry, which is predicted to deliver 63% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's understandable that Gulf Pharmaceutical Industries P.S.C's P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

Despite Gulf Pharmaceutical Industries P.S.C's share price climbing recently, its P/S still lags most other companies. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

In line with expectations, Gulf Pharmaceutical Industries P.S.C maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

You should always think about risks. Case in point, we've spotted 1 warning sign for Gulf Pharmaceutical Industries P.S.C you should be aware of.

If these risks are making you reconsider your opinion on Gulf Pharmaceutical Industries P.S.C, explore our interactive list of high quality stocks to get an idea of what else is out there.