Evolus, Inc. (NASDAQ:EOLS) Might Not Be As Mispriced As It Looks After Plunging 26%

Evolus, Inc. (NASDAQ:EOLS) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 47%, which is great even in a bull market.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Evolus' P/S ratio of 3.2x, since the median price-to-sales (or "P/S") ratio for the Pharmaceuticals industry in the United States is also close to 2.9x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Evolus

What Does Evolus' P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Evolus has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Evolus' Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 34% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 190% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 30% per year as estimated by the six analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 20% each year, which is noticeably less attractive.

With this information, we find it interesting that Evolus is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Evolus' P/S?

Evolus' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Despite enticing revenue growth figures that outpace the industry, Evolus' P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Evolus you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.