Organogenesis Holdings Inc. (NASDAQ:ORGO) Stock Catapults 36% Though Its Price And Business Still Lag The Industry

Despite an already strong run, Organogenesis Holdings Inc. (NASDAQ:ORGO) shares have been powering on, with a gain of 36% in the last thirty days. The annual gain comes to 112% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, Organogenesis Holdings may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.4x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 9.3x and even P/S higher than 49x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

See our latest analysis for Organogenesis Holdings

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

Recent times haven't been great for Organogenesis Holdings as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 9.2% per annum as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 157% per annum, which is noticeably more attractive.

With this in consideration, its clear as to why Organogenesis Holdings' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Organogenesis Holdings' recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

We've established that Organogenesis Holdings maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

You need to take note of risks, for example - Organogenesis Holdings has 2 warning signs (and 1 which is concerning) we think you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.