What OPKO Health, Inc.'s (NASDAQ:OPK) P/S Is Not Telling You

When you see that almost half of the companies in the Healthcare industry in the United States have price-to-sales ratios (or "P/S") below 0.9x, OPKO Health, Inc. (NASDAQ:OPK) looks to be giving off some sell signals with its 1.4x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

We've discovered 1 warning sign about OPKO Health. View them for free.

Check out our latest analysis for OPKO Health

How Has OPKO Health Performed Recently?

While the industry has experienced revenue growth lately, OPKO Health's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on OPKO Health will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The High P/S?

There's an inherent assumption that a company should outperform the industry for P/S ratios like OPKO Health's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 14% decrease to the company's top line. As a result, revenue from three years ago have also fallen 56% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 6.0% per year as estimated by the seven analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 7.5% each year, which is not materially different.

With this information, we find it interesting that OPKO Health is trading at a high P/S compared to the industry. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

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

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.

Given OPKO Health's future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising. The fact that the revenue figures aren't setting the world alight has us doubtful that the company's elevated P/S can be sustainable for the long term. A positive change is needed in order to justify the current price-to-sales ratio.

Having said that, be aware OPKO Health is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of OPKO Health'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.