Revenues Working Against Charles River Laboratories International, Inc.'s (NYSE:CRL) Share Price Following 30% Dive

Charles River Laboratories International, Inc. (NYSE:CRL) shareholders that were waiting for something to happen have been dealt a blow with a 30% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 52% share price decline.

In spite of the heavy fall in price, Charles River Laboratories International's price-to-sales (or "P/S") ratio of 1.5x might still make it look like a buy right now compared to the Life Sciences industry in the United States, where around half of the companies have P/S ratios above 2.4x and even P/S above 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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Check out our latest analysis for Charles River Laboratories International

How Charles River Laboratories International Has Been Performing

Charles River Laboratories International could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor 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 Charles River Laboratories International .

Is There Any Revenue Growth Forecasted For Charles River Laboratories International?

In order to justify its P/S ratio, Charles River Laboratories International would need to produce sluggish growth that's trailing the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 2.0%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 14% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 1.5% per annum as estimated by the analysts watching the company. With the industry predicted to deliver 6.4% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Charles River Laboratories International's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Charles River Laboratories International's P/S

Charles River Laboratories International's P/S has taken a dip along with its share price. 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.

We've established that Charles River Laboratories International maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Charles River Laboratories International that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.