LifeVantage Corporation (NASDAQ:LFVN) Surges 32% Yet Its Low P/S Is No Reason For Excitement

LifeVantage Corporation (NASDAQ:LFVN) shares have had a really impressive month, gaining 32% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 83%.

Even after such a large jump in price, LifeVantage may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.4x, since almost half of all companies in the Personal Products industry in the United States have P/S ratios greater than 1.6x and even P/S higher than 5x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for LifeVantage

What Does LifeVantage's P/S Mean For Shareholders?

Recent times haven't been great for LifeVantage as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. 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 LifeVantage.

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

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

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with revenue down 8.0% overall from three years ago. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 1.9% as estimated by the lone analyst watching the company. With the industry predicted to deliver 8.5% growth, the company is positioned for a weaker revenue result.

With this information, we can see why LifeVantage is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does LifeVantage's P/S Mean For Investors?

The latest share price surge wasn't enough to lift LifeVantage's P/S close to the industry median. 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.

As expected, our analysis of LifeVantage's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 3 warning signs we've spotted with LifeVantage (including 1 which can't be ignored).

If these risks are making you reconsider your opinion on LifeVantage, 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.