It's Down 33% But Scilex Holding Company (NASDAQ:SCLX) Could Be Riskier Than It Looks

The Scilex Holding Company (NASDAQ:SCLX) share price has fared very poorly over the last month, falling by a substantial 33%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 87% loss during that time.

Since its price has dipped substantially, Scilex Holding may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 2.2x, considering almost half of all companies in the Pharmaceuticals industry in the United States have P/S ratios greater than 2.8x and even P/S higher than 15x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Scilex Holding

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

Recent times have been advantageous for Scilex Holding as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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 underperform the industry for P/S ratios like Scilex Holding's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 23% gain to the company's top line. The latest three year period has also seen an excellent 98% overall rise in revenue, aided by its short-term performance. 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 37% each year as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 17% per year growth forecast for the broader industry.

With this information, we find it odd that Scilex Holding is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Scilex Holding's recently weak share price has pulled its P/S back below other Pharmaceuticals companies. 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.

A look at Scilex Holding's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant 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.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Scilex Holding (of which 2 are significant!) you should know about.

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