Market Cool On Sonoma Pharmaceuticals, Inc.'s (NASDAQ:SNOA) Revenues Pushing Shares 25% Lower

The Sonoma Pharmaceuticals, Inc. (NASDAQ:SNOA) share price has fared very poorly over the last month, falling by a substantial 25%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 35% in that time.

After such a large drop in price, Sonoma Pharmaceuticals' price-to-sales (or "P/S") ratio of 0.2x 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 2.7x and even P/S above 11x are quite common. 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.

Check out our latest analysis for Sonoma Pharmaceuticals

What Does Sonoma Pharmaceuticals' P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Sonoma Pharmaceuticals has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited 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 Sonoma Pharmaceuticals.

Is There Any Revenue Growth Forecasted For Sonoma Pharmaceuticals?

In order to justify its P/S ratio, Sonoma Pharmaceuticals would need to produce anemic growth that's substantially trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 14%. The latest three year period has also seen a 12% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 32% as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 17% growth forecast for the broader industry.

With this information, we find it odd that Sonoma Pharmaceuticals 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.

What Does Sonoma Pharmaceuticals' P/S Mean For Investors?

Sonoma Pharmaceuticals' P/S looks about as weak as its stock price lately. 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.

A look at Sonoma Pharmaceuticals' 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. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 3 warning signs for Sonoma Pharmaceuticals you should be aware of, and 2 of them are significant.

If you're unsure about the strength of Sonoma Pharmaceuticals' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.