A Piece Of The Puzzle Missing From ECO Animal Health Group plc's (LON:EAH) Share Price

You may think that with a price-to-sales (or "P/S") ratio of 0.5x ECO Animal Health Group plc (LON:EAH) is a stock worth checking out, seeing as almost half of all the Pharmaceuticals companies in the United Kingdom have P/S ratios greater than 2x and even P/S higher than 5x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

We've discovered 2 warning signs about ECO Animal Health Group. View them for free.

See our latest analysis for ECO Animal Health Group

What Does ECO Animal Health Group's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, ECO Animal Health Group's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on ECO Animal Health Group.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, ECO Animal Health Group would need to produce sluggish growth that's trailing the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 4.4%. As a result, revenue from three years ago have also fallen 17% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 4.1% each year during the coming three years according to the four analysts following the company. With the industry predicted to deliver 5.5% growth per annum, the company is positioned for a comparable revenue result.

With this in consideration, we find it intriguing that ECO Animal Health Group's P/S is lagging behind its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

It looks to us like the P/S figures for ECO Animal Health Group remain low despite growth that is expected to be in line with other companies in the industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

And what about other risks? Every company has them, and we've spotted 2 warning signs for ECO Animal Health Group you should know about.

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.

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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.