With Pyrum Innovations AG (OB:PYRUM) It Looks Like You'll Get What You Pay For

With a price-to-sales (or "P/S") ratio of 11.3x Pyrum Innovations AG (OB:PYRUM) may be sending very bearish signals at the moment, given that almost half of all the Commercial Services companies in Norway have P/S ratios under 4.3x and even P/S lower than 0.6x are not unusual. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Pyrum Innovations

How Pyrum Innovations Has Been Performing

There hasn't been much to differentiate Pyrum Innovations' and the industry's revenue growth lately. Perhaps the market is expecting future revenue performance to improve, justifying the currently elevated P/S. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Pyrum Innovations.

What Are Revenue Growth Metrics Telling Us About The High P/S?

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

If we review the last year of revenue growth, the company posted a terrific increase of 18%. Still, revenue has fallen 26% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 69% per annum as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 6.2% each year, which is noticeably less attractive.

In light of this, it's understandable that Pyrum Innovations' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Pyrum Innovations' 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.

We've established that Pyrum Innovations maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Commercial Services industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Pyrum Innovations with six simple checks.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.