Even With A 27% Surge, Cautious Investors Are Not Rewarding Scilex Holding Company's (NASDAQ:SCLX) Performance Completely

Those holding Scilex Holding Company (NASDAQ:SCLX) shares would be relieved that the share price has rebounded 27% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 90% share price drop in the last twelve months.

Even after such a large jump in price, Scilex Holding may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.7x, considering almost half of all companies in the Pharmaceuticals industry in the United States have P/S ratios greater than 4.9x and even P/S higher than 13x 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.

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See our latest analysis for Scilex Holding

What Does Scilex Holding's P/S Mean For Shareholders?

Recent times haven't been great for Scilex Holding 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 you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Scilex Holding.

How Is Scilex Holding's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a worthy increase of 7.8%. This was backed up an excellent period prior to see revenue up by 55% in total over the last three years. 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 105% each year as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 18% per annum growth forecast for the broader industry.

With this in consideration, we find it intriguing that Scilex Holding's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

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

Scilex Holding's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 4 warning signs for Scilex Holding you should be aware of, and 3 of them shouldn't be ignored.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.