Prestige Consumer Healthcare Inc.'s (NYSE:PBH) Shares May Have Run Too Fast Too Soon

It's not a stretch to say that Prestige Consumer Healthcare Inc.'s (NYSE:PBH) price-to-sales (or "P/S") ratio of 2.7x 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 3.2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Prestige Consumer Healthcare

How Has Prestige Consumer Healthcare Performed Recently?

Prestige Consumer Healthcare could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Prestige Consumer Healthcare.

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 virtually the same number to the company's top line as the year before. Still, the latest three year period was better as it's delivered a decent 17% overall rise in revenue. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 2.2% per year as estimated by the seven analysts watching the company. That's shaping up to be materially lower than the 52% each year growth forecast for the broader industry.

With this information, we find it interesting that Prestige Consumer Healthcare is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

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

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

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. A positive change is needed in order to justify the current price-to-sales ratio.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Prestige Consumer Healthcare that you need to be mindful 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.