The Scilex Holding Company (NASDAQ:SCLX) share price has softened a substantial 27% over the previous 30 days, handing back much of the gains the stock has made lately. For any long-term shareholders, the last month ends a year to forget by locking in a 83% share price decline.

Even after such a large drop in price, there still wouldn't be many who think Scilex Holding's price-to-sales (or "P/S") ratio of 3.1x is worth a mention when the median P/S in the United States' Pharmaceuticals industry is similar at about 3x. 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.

How Has Scilex Holding Performed Recently?

With revenue growth that's superior to most other companies of late, Scilex Holding has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Is There Some Revenue Growth Forecasted For Scilex Holding?

In order to justify its P/S ratio, Scilex Holding would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 23% gain to the company's top line. Pleasingly, revenue has also lifted 98% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 37% per annum as estimated by the three analysts watching the company. That's shaping up to be similar to the 35% per year growth forecast for the broader industry.

With this information, we can see why Scilex Holding is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What We Can Learn From Scilex Holding's P/S?

Following Scilex Holding's share price tumble, its P/S is just clinging on to the industry median P/S. 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 seen that Scilex Holding maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

You should always think about risks. Case in point, we've spotted 3 warning signs for Scilex Holding you should be aware of, and 2 of them are significant.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.