Why Investors Shouldn't Be Surprised By Vext Science, Inc.'s (CSE:VEXT) 65% Share Price Surge

Explore Vext Science's Fair Values from the Community and select yours

Despite an already strong run, Vext Science, Inc. (CSE:VEXT) shares have been powering on, with a gain of 65% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 9.8% isn't as impressive.

Since its price has surged higher, given close to half the companies operating in Canada's Pharmaceuticals industry have price-to-sales ratios (or "P/S") below 1x, you may consider Vext Science as a stock to potentially avoid with its 1.6x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Vext Science

What Does Vext Science's Recent Performance Look Like?

Recent times have been advantageous for Vext Science as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For Vext Science?

Vext Science's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 15% last year. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. 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 36% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 20%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Vext Science'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 Bottom Line On Vext Science's P/S

The large bounce in Vext Science's shares has lifted the company's P/S handsomely. 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.

As we suspected, our examination of Vext Science's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

It is also worth noting that we have found 4 warning signs for Vext Science (2 shouldn't be ignored!) that you need to take into consideration.

If you're unsure about the strength of Vext Science's 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.