MediWound Ltd. (NASDAQ:MDWD) shares have had a really impressive month, gaining 26% after a shaky period beforehand.    Taking a wider view, although not as strong as the last month, the full year gain of 12% is also fairly reasonable.  

After such a large jump in price, MediWound may be sending sell signals at present with a price-to-sales (or "P/S") ratio of 3.9x, when you consider almost half of the companies in the Pharmaceuticals industry in the United States have P/S ratios under 3.1x and even P/S lower than 0.7x 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 elevated P/S.  

See our latest analysis for MediWound

NasdaqGM:MDWD Price to Sales Ratio vs Industry December 18th 2023

How Has MediWound Performed Recently?

MediWound could be doing better as it's been growing revenue less than most other companies lately.   It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing.  If not, then existing shareholders may be very nervous about the viability of the share price.    

Keen to find out how analysts think MediWound's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?  

There's an inherent assumption that a company should outperform the industry for P/S ratios like MediWound's to be considered reasonable.  

Retrospectively, the last year delivered an exceptional 23% gain to the company's top line.   The latest three year period has also seen a 22% overall rise in revenue, aided extensively by its short-term performance.  So we can start by confirming that the company has actually done a good job of growing revenue over that time.  

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 31% each year over the next three years.  With the industry predicted to deliver 53% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's alarming that MediWound's P/S sits above the majority of other companies.  It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen.  There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.  

The Final Word

MediWound shares have taken a big step in a northerly direction, but its P/S is elevated as a result.      It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've concluded that MediWound currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry.  When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures.  Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.    

We don't want to rain on the parade too much, but we did also find 2 warning signs for MediWound (1 is a bit unpleasant!) that you need to be mindful of.  

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.