With a price-to-sales (or "P/S") ratio of 3.6x Evolus, Inc. (NASDAQ:EOLS) may be sending bearish signals at the moment, given that almost half of all Pharmaceuticals companies in the United States have P/S ratios under 2.8x and even P/S lower than 0.8x are not unusual. 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 Evolus' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Evolus has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is Evolus' Revenue Growth Trending?

In order to justify its P/S ratio, Evolus would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered an exceptional 40% gain to the company's top line. The latest three year period has also seen an excellent 277% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 30% each year as estimated by the seven analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 17% each year, which is noticeably less attractive.

With this information, we can see why Evolus is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Evolus' P/S?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Evolus' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

You always need to take note of risks, for example - Evolus has 2 warning signs we think you should be aware of.

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.

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