Organogenesis Holdings Inc. (NASDAQ:ORGO) Surges 42% Yet Its Low P/S Is No Reason For Excitement
Organogenesis Holdings Inc. (NASDAQ:ORGO) shares have continued their recent momentum with a 42% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 47%.
In spite of the firm bounce in price, Organogenesis Holdings' price-to-sales (or "P/S") ratio of 1.1x might still make it look like a strong buy right now compared to the wider Biotechs industry in the United States, where around half of the companies have P/S ratios above 11.6x and even P/S above 49x 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.
See our latest analysis for Organogenesis Holdings
How Has Organogenesis Holdings Performed Recently?
Organogenesis Holdings could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Organogenesis Holdings.
Is There Any Revenue Growth Forecasted For Organogenesis Holdings?
In order to justify its P/S ratio, Organogenesis Holdings would need to produce anemic growth that's substantially trailing the industry.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 3.1%. Still, the latest three year period has seen an excellent 47% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.
Turning to the outlook, the next year should generate growth of 0.9% as estimated by the dual analysts watching the company. That's shaping up to be materially lower than the 929% growth forecast for the broader industry.
In light of this, it's understandable that Organogenesis Holdings' 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.
The Final Word
Even after such a strong price move, Organogenesis Holdings' P/S still trails the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
As expected, our analysis of Organogenesis Holdings' 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. The company will need a change of fortune to justify the P/S rising higher in the future.
You should always think about risks. Case in point, we've spotted 2 warning signs for Organogenesis Holdings you should be aware of.
If you're unsure about the strength of Organogenesis Holdings' 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.
