Improved Revenues Required Before Assertio Holdings, Inc. (NASDAQ:ASRT) Stock's 26% Jump Looks Justified

Assertio Holdings, Inc. (NASDAQ:ASRT) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 83% share price drop in the last twelve months.

Even after such a large jump in price, Assertio Holdings' price-to-sales (or "P/S") ratio of 0.6x might still make it look like a strong buy right now compared to the wider Pharmaceuticals industry in the United States, where around half of the companies have P/S ratios above 2.9x and even P/S above 20x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Assertio Holdings

What Does Assertio Holdings' P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Assertio Holdings' 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.

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

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

The only time you'd be truly comfortable seeing a P/S as depressed as Assertio Holdings' is when the company's growth is on track to lag the industry decidedly.

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 2.7%. Still, the latest three year period has seen an excellent 41% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Shifting to the future, estimates from the two analysts covering the company suggest revenue growth is heading into negative territory, declining 23% over the next year. That's not great when the rest of the industry is expected to grow by 19%.

In light of this, it's understandable that Assertio Holdings' P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Final Word

Even after such a strong price move, Assertio Holdings' P/S still trails the rest of the industry. 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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Assertio Holdings' P/S is on the lower end of the spectrum. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Assertio Holdings is showing 2 warning signs in our investment analysis, and 1 of those is a bit concerning.

If you're unsure about the strength of Assertio Holdings' 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.