Veru Inc. (NASDAQ:VERU) shares have had a horrible month, losing 40% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 57% share price decline.
Since its price has dipped substantially, Veru may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 3.1x, considering almost half of all companies in the Pharmaceuticals industry in the United States have P/S ratios greater than 5.7x and even P/S higher than 16x 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 reduced P/S.
Check out our latest analysis for Veru
What Does Veru's Recent Performance Look Like?
Veru certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Keen to find out how analysts think Veru's future stacks up against the industry? In that case, our free report is a great place to start.How Is Veru's Revenue Growth Trending?
Veru's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 134%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 72% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.
Turning to the outlook, the next three years should generate growth of 5.6% per year as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 26% per annum, which is noticeably more attractive.
In light of this, it's understandable that Veru's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What We Can Learn From Veru's P/S?
Veru's recently weak share price has pulled its P/S back below other Pharmaceuticals companies. 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.
We've established that Veru maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
There are also other vital risk factors to consider and we've discovered 4 warning signs for Veru (1 is a bit concerning!) that you should be aware of before investing here.
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.
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.