Investors Give ProPhase Labs, Inc. (NASDAQ:PRPH) Shares A 65% Hiding

ProPhase Labs, Inc. (NASDAQ:PRPH) shareholders that were waiting for something to happen have been dealt a blow with a 65% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 83% loss during that time.

Following the heavy fall in price, ProPhase Labs' price-to-sales (or "P/S") ratio of 0.8x might make it look like a strong buy right now compared to the wider Pharmaceuticals industry in the United States, where around half of the companies have P/S ratios above 3x and even P/S above 16x 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.

Check out our latest analysis for ProPhase Labs

What Does ProPhase Labs' P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, ProPhase Labs' revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Is There Any Revenue Growth Forecasted For ProPhase Labs?

ProPhase Labs' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 77%. The last three years don't look nice either as the company has shrunk revenue by 46% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 80% as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 22% growth forecast for the broader industry.

With this in consideration, we find it intriguing that ProPhase Labs' P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Having almost fallen off a cliff, ProPhase Labs' share price has pulled its P/S way down as well. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

ProPhase Labs' analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware ProPhase Labs is showing 4 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.