Improved Revenues Required Before Perrigo Company plc (NYSE:PRGO) Shares Find Their Feet

With a price-to-sales (or "P/S") ratio of 0.8x Perrigo Company plc (NYSE:PRGO) may be sending bullish signals at the moment, given that almost half of all the Pharmaceuticals companies in the United States have P/S ratios greater than 2.7x and even P/S higher than 14x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Perrigo

What Does Perrigo's P/S Mean For Shareholders?

Perrigo 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. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

How Is Perrigo's Revenue Growth Trending?

Perrigo's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 5.6% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 7.5% 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.

Turning to the outlook, the next three years should generate growth of 3.6% each year as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 24% per annum, which is noticeably more attractive.

With this information, we can see why Perrigo is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Perrigo's P/S Mean For Investors?

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.

As we suspected, our examination of Perrigo's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

You need to take note of risks, for example - Perrigo has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

If these risks are making you reconsider your opinion on Perrigo, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.