Pieris Pharmaceuticals, Inc. (NASDAQ:PIRS) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. For any long-term shareholders, the last month ends a year to forget by locking in a 82% share price decline.

Following the heavy fall in price, Pieris Pharmaceuticals' price-to-sales (or "P/S") ratio of 0.3x might make it look like a strong buy right now compared to the wider Biotechs industry in the United States, where around half of the companies have P/S ratios above 12.6x and even P/S above 63x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

What Does Pieris Pharmaceuticals' P/S Mean For Shareholders?

Pieris Pharmaceuticals certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. 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.

Is There Any Revenue Growth Forecasted For Pieris Pharmaceuticals?

In order to justify its P/S ratio, Pieris Pharmaceuticals would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 65% last year. Pleasingly, revenue has also lifted 46% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 148% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Pieris Pharmaceuticals' P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Pieris Pharmaceuticals' P/S

Having almost fallen off a cliff, Pieris Pharmaceuticals' share price has pulled its P/S way down as well. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Pieris Pharmaceuticals 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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 5 warning signs for Pieris Pharmaceuticals (2 are a bit unpleasant!) that you need to take into consideration.

If you're unsure about the strength of Pieris Pharmaceuticals' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.