Pacira BioSciences, Inc. (NASDAQ:PCRX) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 44% over that time.

Although its price has surged higher, Pacira BioSciences may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.1x, considering almost half of all companies in the Pharmaceuticals industry in the United States have P/S ratios greater than 2.8x 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.

What Does Pacira BioSciences' P/S Mean For Shareholders?

Recent times haven't been great for Pacira BioSciences as its revenue has been rising slower than most other companies. 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.

Do Revenue Forecasts Match The Low P/S Ratio?

Pacira BioSciences' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 3.2%. Pleasingly, revenue has also lifted 37% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to slump, contracting by 0.3% per year during the coming three years according to the eight analysts following the company. That's not great when the rest of the industry is expected to grow by 17% per year.

In light of this, it's understandable that Pacira BioSciences' P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

The latest share price surge wasn't enough to lift Pacira BioSciences' P/S close to the industry median. 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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Pacira BioSciences' P/S is on the lower end of the spectrum. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 1 warning sign for Pacira BioSciences you should be aware of.

If you're unsure about the strength of Pacira BioSciences' 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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