Pinning Down Prestige Consumer Healthcare Inc.'s (NYSE:PBH) P/S Is Difficult Right Now

It's not a stretch to say that Prestige Consumer Healthcare Inc.'s (NYSE:PBH) price-to-sales (or "P/S") ratio of 3.4x right now seems quite "middle-of-the-road" for companies in the Pharmaceuticals industry in the United States, where the median P/S ratio is around 3.1x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Prestige Consumer Healthcare

What Does Prestige Consumer Healthcare's P/S Mean For Shareholders?

Prestige Consumer Healthcare hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Prestige Consumer Healthcare's Revenue Growth Trending?

Prestige Consumer Healthcare's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a frustrating 1.5% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 8.7% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Looking ahead now, revenue is anticipated to climb by 2.6% per annum during the coming three years according to the eight analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 22% per annum, which is noticeably more attractive.

In light of this, it's curious that Prestige Consumer Healthcare's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Prestige Consumer Healthcare's P/S?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

When you consider that Prestige Consumer Healthcare's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Prestige Consumer Healthcare that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.