Take Care Before Jumping Onto The Hydration Pharmaceuticals Company Limited (ASX:HPC) Even Though It's 31% Cheaper

Unfortunately for some shareholders, the The Hydration Pharmaceuticals Company Limited (ASX:HPC) share price has dived 31% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 85% share price decline.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Hydration Pharmaceuticals' P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Personal Products industry in Australia is also close to 0.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Hydration Pharmaceuticals

What Does Hydration Pharmaceuticals' Recent Performance Look Like?

The revenue growth achieved at Hydration Pharmaceuticals over the last year would be more than acceptable for most companies. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Hydration Pharmaceuticals will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Hydration Pharmaceuticals' earnings, revenue and cash flow.

How Is Hydration Pharmaceuticals' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Hydration Pharmaceuticals' to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 10% last year. This was backed up an excellent period prior to see revenue up by 167% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 7.4%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it interesting that Hydration Pharmaceuticals is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

What Does Hydration Pharmaceuticals' P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for Hydration Pharmaceuticals looks to be in line with the rest of the Personal Products industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

To our surprise, Hydration Pharmaceuticals revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

Don't forget that there may be other risks. For instance, we've identified 6 warning signs for Hydration Pharmaceuticals that you should be aware of.

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

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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.

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