Yahoo Finance Affimed N.V.'s (NASDAQ:AFMD) Price Is Right But Growth Is Lacking
You may think that with a price-to-sales (or "P/S") ratio of 2.7x Affimed N.V. (NASDAQ:AFMD) is definitely a stock worth checking out, seeing as almost half of all the Biotechs companies in the United States have P/S ratios greater than 11.5x and even P/S above 53x 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.
View our latest analysis for Affimed
What Does Affimed's Recent Performance Look Like?
Affimed could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Affimed will help you uncover what's on the horizon.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
In order to justify its P/S ratio, Affimed would need to produce anemic growth that's substantially trailing the industry.
Retrospectively, the last year delivered a decent 3.2% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 100% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.
Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 9.2% each year as estimated by the nine analysts watching the company. Meanwhile, the broader industry is forecast to expand by 104% each year, which paints a poor picture.
In light of this, it's understandable that Affimed's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.
The Bottom Line On Affimed's P/S
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 Affimed's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. As other companies in the industry are forecasting revenue growth, Affimed's poor outlook justifies its low P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
There are also other vital risk factors to consider and we've discovered 2 warning signs for Affimed (1 doesn't sit too well with us!) that you should be aware of before investing here.
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.
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