Scilex Holding Company (NASDAQ:SCLX) Stock's 29% Dive Might Signal An Opportunity But It Requires Some Scrutiny

To the annoyance of some shareholders, Scilex Holding Company (NASDAQ:SCLX) shares are down a considerable 29% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 78% share price decline.

Following the heavy fall in price, Scilex Holding's price-to-sales (or "P/S") ratio of 1x might make it look like a buy right now compared to the Pharmaceuticals industry in the United States, where around half of the companies have P/S ratios above 2.7x and even P/S above 12x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Scilex Holding

How Scilex Holding Has Been Performing

With revenue growth that's inferior to most other companies of late, Scilex Holding 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 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.

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

How Is Scilex Holding's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Scilex Holding's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 22% gain to the company's top line. Pleasingly, revenue has also lifted 76% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 89% per year during the coming three years according to the four analysts following the company. That's shaping up to be materially higher than the 17% each year 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. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Scilex Holding's P/S?

Scilex Holding's P/S has taken a dip along with its share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

To us, it seems Scilex Holding currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. 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.

Before you settle on your opinion, we've discovered 4 warning signs for Scilex Holding (2 are significant!) that you should be aware of.

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.