OPKO Health, Inc.'s (NASDAQ:OPK) 28% Share Price Surge Not Quite Adding Up

Despite an already strong run, OPKO Health, Inc. (NASDAQ:OPK) shares have been powering on, with a gain of 28% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 16% over that time.

Since its price has surged higher, when almost half of the companies in the United States' Healthcare industry have price-to-sales ratios (or "P/S") below 1.1x, you may consider OPKO Health as a stock probably not worth researching with its 1.7x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for OPKO Health

What Does OPKO Health's P/S Mean For Shareholders?

OPKO Health hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be extremely 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 OPKO Health.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as high as OPKO Health's is when the company's growth is on track to outshine the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 41%. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 5.2% per year during the coming three years according to the six analysts following the company. With the industry predicted to deliver 7.9% growth per annum, the company is positioned for a weaker revenue result.

With this information, we find it concerning that OPKO Health is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

OPKO Health shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

It comes as a surprise to see OPKO Health trade at such a high P/S given the revenue forecasts look less than stellar. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

And what about other risks? Every company has them, and we've spotted 3 warning signs for OPKO Health you should know about.

If these risks are making you reconsider your opinion on OPKO Health, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.