Take Care Before Jumping Onto Vext Science, Inc. (CSE:VEXT) Even Though It's 30% Cheaper

Vext Science, Inc. (CSE:VEXT) shares have had a horrible month, losing 30% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 19% in that time.

Although its price has dipped substantially, it's still not a stretch to say that Vext Science's price-to-sales (or "P/S") ratio of 1.2x right now seems quite "middle-of-the-road" compared to the Pharmaceuticals industry in Canada, seeing as it matches the P/S ratio of the wider industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Vext Science

How Has Vext Science Performed Recently?

With revenue growth that's inferior to most other companies of late, Vext Science has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think Vext Science's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Vext Science's Revenue Growth Trending?

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

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Regardless, revenue has managed to lift by a handy 13% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to climb by 39% during the coming year according to the three analysts following the company. That's shaping up to be materially higher than the 6.5% growth forecast for the broader industry.

In light of this, it's curious that Vext Science's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What Does Vext Science's P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for Vext Science looks to be in line with the rest of the Pharmaceuticals industry. 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.

We've established that Vext Science currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Vext Science (1 can't be ignored) you should be aware of.

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.

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