Biome Australia Limited (ASX:BIO) shareholders have had their patience rewarded with a 28% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 13% in the last twelve months.

Since its price has surged higher, given around half the companies in Australia's Personal Products industry have price-to-sales ratios (or "P/S") below 0.9x, you may consider Biome Australia as a stock to avoid entirely with its 8x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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View our latest analysis for Biome Australia

What Does Biome Australia's Recent Performance Look Like?

Biome Australia could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Biome Australia would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 61% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 42% over the next year. With the industry only predicted to deliver 4.4%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Biome Australia's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Shares in Biome Australia have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

As we suspected, our examination of Biome Australia's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

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

If these risks are making you reconsider your opinion on Biome Australia, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.