To the annoyance of some shareholders, Scilex Holding Company (NASDAQ:SCLX) shares are down a considerable 39% in the last month, which continues a horrid run for the company.    For any long-term shareholders, the last month ends a year to forget by locking in a 88% share price decline.  

Since its price has dipped substantially, Scilex Holding may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 2.1x, considering almost half of all companies in the Pharmaceuticals industry in the United States have P/S ratios greater than 3.1x and even P/S higher than 13x aren't out of the ordinary.   Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.  

NasdaqCM:SCLX Price to Sales Ratio vs Industry May 14th 2024

What Does Scilex Holding's Recent Performance Look Like?

Scilex Holding certainly has been doing a good job lately as it's been growing revenue more than most other companies.   One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward.  If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.    

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

How Is Scilex Holding's Revenue Growth Trending?  

The only time you'd be truly comfortable seeing a P/S as low as Scilex Holding's is when the company's growth is on track to lag 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.  

Looking ahead now, revenue is anticipated to climb by 37% per annum during the coming three years according to the three analysts following the company.  That's shaping up to be materially higher than the 19% per annum growth forecast for the broader industry.

With this in consideration, we find it intriguing that Scilex Holding's P/S sits behind most of its industry peers.  Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.  

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

Scilex Holding's recently weak share price has pulled its P/S back below other Pharmaceuticals companies.      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.

To us, it seems Scilex Holding currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry.  There could be some major risk factors that are placing downward pressure on the P/S ratio.  At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.    

We don't want to rain on the parade too much, but we did also find 4 warning signs for Scilex Holding (2 can't be ignored!) that you need to be mindful of.  

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.