Inotiv, Inc.'s (NASDAQ:NOTV) Price Is Right But Growth Is Lacking After Shares Rocket 34%

Inotiv, Inc. (NASDAQ:NOTV) shares have continued their recent momentum with a 34% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 27% over that time.

Although its price has surged higher, Inotiv's price-to-sales (or "P/S") ratio of 0.2x might still make it look like a strong buy right now compared to the wider Life Sciences industry in the United States, where around half of the companies have P/S ratios above 3.6x and even P/S above 7x 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.

See our latest analysis for Inotiv

What Does Inotiv's Recent Performance Look Like?

Recent times have been more advantageous for Inotiv as its revenue hasn't fallen as much as the rest of the industry. One possibility is that the P/S ratio is low because investors think this relatively better revenue performance might be about to deteriorate significantly. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. In saying that, existing shareholders probably aren't pessimistic about the share price if the company's revenue continues outplaying the industry.

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

Is There Any Revenue Growth Forecasted For Inotiv?

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

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Despite the lack of growth, the company was still able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company, but investors will want to ask why it has slowed to such an extent.

Looking ahead now, revenue is anticipated to climb by 2.7% each year during the coming three years according to the three analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 6.5% each year, which is noticeably more attractive.

In light of this, it's understandable that Inotiv's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Shares in Inotiv have risen appreciably however, its P/S is still subdued. 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.

As expected, our analysis of Inotiv's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for Inotiv (1 is a bit concerning!) that we have uncovered.

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