Evolus, Inc. (NASDAQ:EOLS) Soars 30% But It's A Story Of Risk Vs Reward

Evolus, Inc. (NASDAQ:EOLS) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. Taking a wider view, although not as strong as the last month, the full year gain of 21% is also fairly reasonable.

Even after such a large jump in price, it's still not a stretch to say that Evolus' price-to-sales (or "P/S") ratio of 3.6x right now seems quite "middle-of-the-road" compared to the Pharmaceuticals industry in the United States, where the median P/S ratio is around 3.1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Evolus

How Has Evolus Performed Recently?

Recent revenue growth for Evolus has been in line with the industry. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

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.

Is There Some Revenue Growth Forecasted For Evolus?

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

Taking a look back first, we see that the company grew revenue by an impressive 34% last year. The latest three year period has also seen an excellent 190% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 31% each year as estimated by the six analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 23% per annum, 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.

The Bottom Line On Evolus' P/S

Evolus appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Despite enticing revenue growth figures that outpace the industry, Evolus' P/S isn't quite what we'd expect. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Evolus that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.