ChromaDex Corporation (NASDAQ:CDXC) shares have retraced a considerable 28% in the last month, reversing a fair amount of their solid recent performance. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 273% in the last twelve months.

Although its price has dipped substantially, you could still be forgiven for thinking ChromaDex is a stock not worth researching with a price-to-sales ratios (or "P/S") of 4.5x, considering almost half the companies in the United States' Life Sciences industry have P/S ratios below 3.4x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

What Does ChromaDex's P/S Mean For Shareholders?

ChromaDex certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

What Are Revenue Growth Metrics Telling Us About The High P/S?

The only time you'd be truly comfortable seeing a P/S as high as ChromaDex's is when the company's growth is on track to outshine the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 10.0% last year. This was backed up an excellent period prior to see revenue up by 41% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 23% during the coming year according to the five analysts following the company. That's shaping up to be materially higher than the 4.9% growth forecast for the broader industry.

With this in mind, it's not hard to understand why ChromaDex's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does ChromaDex's P/S Mean For Investors?

There's still some elevation in ChromaDex's P/S, even if the same can't be said for its share price recently. 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.

Our look into ChromaDex shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 1 warning sign for ChromaDex that we have uncovered.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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.