Brooks Laboratories Limited (NSE:BROOKS) Not Doing Enough For Some Investors As Its Shares Slump 31%

To the annoyance of some shareholders, Brooks Laboratories Limited (NSE:BROOKS) shares are down a considerable 31% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 61% loss during that time.

After such a large drop in price, Brooks Laboratories may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 2.2x, considering almost half of all companies in the Life Sciences industry in India have P/S ratios greater than 3.1x and even P/S higher than 10x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Brooks Laboratories

What Does Brooks Laboratories' P/S Mean For Shareholders?

The revenue growth achieved at Brooks Laboratories over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. Those who are bullish on Brooks Laboratories will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Brooks Laboratories, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Brooks Laboratories?

In order to justify its P/S ratio, Brooks Laboratories would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 19%. As a result, it also grew revenue by 12% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 18% shows it's noticeably less attractive.

With this in consideration, it's easy to understand why Brooks Laboratories' P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Final Word

The southerly movements of Brooks Laboratories' shares means its P/S is now sitting at a pretty low level. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Brooks Laboratories revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. 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.

Before you settle on your opinion, we've discovered 2 warning signs for Brooks Laboratories that you should be aware of.

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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.