Organogenesis Holdings Inc.'s (NASDAQ:ORGO) Shares Bounce 27% But Its Business Still Trails The Industry

Organogenesis Holdings Inc. (NASDAQ:ORGO) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 39% in the last year.

In spite of the firm bounce in price, Organogenesis Holdings' price-to-sales (or "P/S") ratio of 1.5x might still make it look like a strong buy right now compared to the wider Biotechs industry in the United States, where around half of the companies have P/S ratios above 13.1x and even P/S above 110x 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.

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View our latest analysis for Organogenesis Holdings

How Organogenesis Holdings Has Been Performing

With revenue growth that's inferior to most other companies of late, Organogenesis Holdings has been relatively sluggish. 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.

Is There Any Revenue Growth Forecasted For Organogenesis Holdings?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Organogenesis Holdings' to be considered reasonable.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Likewise, not much has changed from three years ago as revenue have been stuck during that whole time. Accordingly, shareholders probably wouldn't have been satisfied with the complete absence of medium-term growth.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 15% over the next year. With the industry predicted to deliver 48% growth, the company is positioned for a weaker revenue result.

With this information, we can see why Organogenesis Holdings is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

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

Organogenesis Holdings' recent share price jump still sees fails to bring its P/S alongside the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Organogenesis Holdings' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware Organogenesis Holdings is showing 2 warning signs in our investment analysis, and 1 of those is potentially serious.

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.

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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.