Prestige Consumer Healthcare Inc. (NYSE:PBH) Investors Are Less Pessimistic Than Expected

With a median price-to-sales (or "P/S") ratio of close to 3.5x in the Pharmaceuticals industry in the United States, you could be forgiven for feeling indifferent about Prestige Consumer Healthcare Inc.'s (NYSE:PBH) P/S ratio of 3.6x. 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.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

View our latest analysis for Prestige Consumer Healthcare

What Does Prestige Consumer Healthcare's P/S Mean For Shareholders?

Prestige Consumer Healthcare could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

How Is Prestige Consumer Healthcare's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 1.4% decrease to the company's top line. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 5.7% in total. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 2.4% each year as estimated by the eight analysts watching the company. With the industry predicted to deliver 20% growth each year, the company is positioned for a weaker revenue result.

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?

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.

Given that Prestige Consumer Healthcare's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it 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. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Having said that, be aware Prestige Consumer Healthcare is showing 1 warning sign in our investment analysis, you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.