ANI Pharmaceuticals, Inc. (NASDAQ:ANIP) Surges 25% Yet Its Low P/S Is No Reason For Excitement
ANI Pharmaceuticals, Inc. (NASDAQ:ANIP) shares surged 25% in the last month and 41% over the past year. Despite this growth, the company's price-to-sales (P/S) ratio remains low at 2.2x, compared to the industry average of 5.8x. Analysts forecast revenue growth of 8.9% annually over the next three years, significantly lower than the industry’s 26%. This disparity in growth expectations contributes to the low P/S ratio, indicating investor skepticism about future performance. Without improvement in growth forecasts, the share price may remain constrained.
Explore ANI Pharmaceuticals's Fair Values from the Community and select yours
ANI Pharmaceuticals, Inc. (NASDAQ:ANIP) shares have continued their recent momentum with a 25% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 41% in the last year.
Even after such a large jump in price, ANI Pharmaceuticals may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 2.2x, considering almost half of all companies in the Pharmaceuticals industry in the United States have P/S ratios greater than 5.8x and even P/S higher than 18x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.
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Check out our latest analysis for ANI Pharmaceuticals
How ANI Pharmaceuticals Has Been Performing
ANI Pharmaceuticals certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. 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.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on ANI Pharmaceuticals.
Is There Any Revenue Growth Forecasted For ANI Pharmaceuticals?
The only time you'd be truly comfortable seeing a P/S as depressed as ANI Pharmaceuticals' is when the company's growth is on track to lag the industry decidedly.
If we review the last year of revenue growth, the company posted a terrific increase of 39%. The strong recent performance means it was also able to grow revenue by 197% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.
Looking ahead now, revenue is anticipated to climb by 8.9% per annum during the coming three years according to the eight analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 26% per annum, which is noticeably more attractive.
With this information, we can see why ANI Pharmaceuticals is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Final Word
ANI Pharmaceuticals' recent share price jump still sees fails to bring its P/S alongside the industry median. 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.
We've established that ANI Pharmaceuticals maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
Before you take the next step, you should know about the 1 warning sign for ANI Pharmaceuticals that we have uncovered.
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).
