Teva Pharmaceutical Industries Limited (NYSE:TEVA) Held Back By Insufficient Growth Even After Shares Climb 26%

Teva Pharmaceutical Industries Limited (NYSE:TEVA) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 4.0% isn't as impressive.

In spite of the firm bounce in price, Teva Pharmaceutical Industries' price-to-sales (or "P/S") ratio of 1.2x might still make it look like a strong buy right now compared to the wider Pharmaceuticals industry in the United States, where around half of the companies have P/S ratios above 4.5x and even P/S above 14x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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See our latest analysis for Teva Pharmaceutical Industries

What Does Teva Pharmaceutical Industries' P/S Mean For Shareholders?

Teva Pharmaceutical Industries could be doing better as it's been growing revenue less than most other companies lately. 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.

Keen to find out how analysts think Teva Pharmaceutical Industries' future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as depressed as Teva Pharmaceutical Industries' is when the company's growth is on track to lag the industry decidedly.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.8% last year. The latest three year period has also seen a 6.8% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 2.6% per annum as estimated by the nine analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 18% each year, which is noticeably more attractive.

In light of this, it's understandable that Teva Pharmaceutical Industries' 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.

What We Can Learn From Teva Pharmaceutical Industries' P/S?

Even after such a strong price move, Teva Pharmaceutical Industries' P/S still trails the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As expected, our analysis of Teva Pharmaceutical Industries' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Teva Pharmaceutical Industries with six simple checks on some of these key factors.

If you're unsure about the strength of Teva Pharmaceutical Industries' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.