Veru Inc.'s (NASDAQ:VERU) 35% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

The Veru Inc. (NASDAQ:VERU) share price has softened a substantial 35% over the previous 30 days, handing back much of the gains the stock has made lately. The recent drop has obliterated the annual return, with the share price now down 7.1% over that longer period.

Even after such a large drop in price, when almost half of the companies in the United States' Personal Products industry have price-to-sales ratios (or "P/S") below 1.5x, you may still consider Veru as a stock not worth researching with its 10.5x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Veru

What Does Veru's Recent Performance Look Like?

Veru could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Veru's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Veru's Revenue Growth Trending?

In order to justify its P/S ratio, Veru would need to produce outstanding growth that's well in excess of 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 37%. As a result, revenue from three years ago have also fallen 73% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 13% per annum as estimated by the five analysts watching the company. With the industry predicted to deliver 7.0% growth per annum, that's a disappointing outcome.

In light of this, it's alarming that Veru's P/S sits above the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

The Key Takeaway

Veru's shares may have suffered, but its P/S remains high. 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.

For a company with revenues that are set to decline in the context of a growing industry, Veru's P/S is much higher than we would've anticipated. Right now we aren't comfortable with the high P/S as the predicted future revenue decline likely to impact the positive sentiment that's propping up the P/S. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 6 warning signs for Veru (3 are a bit concerning!) that you need to take into consideration.

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