Improved Revenues Required Before Bausch Health Companies Inc. (NYSE:BHC) Stock's 30% Jump Looks Justified

Despite an already strong run, Bausch Health Companies Inc. (NYSE:BHC) shares have been powering on, with a gain of 30% in the last thirty days. The last 30 days bring the annual gain to a very sharp 46%.

Although its price has surged higher, Bausch Health Companies may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.3x, considering almost half of all companies in the Pharmaceuticals industry in the United States have P/S ratios greater than 5.5x and even P/S higher than 17x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Bausch Health Companies

How Has Bausch Health Companies Performed Recently?

Recent times haven't been great for Bausch Health Companies as its revenue has been rising slower than most other companies. 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.

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

How Is Bausch Health Companies' Revenue Growth Trending?

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

Retrospectively, the last year delivered a decent 7.1% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 20% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 0.9% each year during the coming three years according to the six analysts following the company. With the industry predicted to deliver 26% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Bausch Health Companies' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Bausch Health Companies' recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

As expected, our analysis of Bausch Health Companies' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Bausch Health Companies (1 doesn't sit too well with us!) that you need to be mindful 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.