The Sonoma Pharmaceuticals, Inc. (NASDAQ:SNOA) share price has done very well over the last month, posting an excellent gain of 25%.    But the last month did very little to improve the 79% share price decline over the last year.  

Even after such a large jump in price, Sonoma Pharmaceuticals may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Pharmaceuticals industry in the United States have P/S ratios greater than 2.9x and even P/S higher than 12x are not unusual.   Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.  

NasdaqCM:SNOA Price to Sales Ratio vs Industry June 6th 2024

How Sonoma Pharmaceuticals Has Been Performing

Sonoma Pharmaceuticals hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average.   Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon.  If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.    

Keen to find out how analysts think Sonoma Pharmaceuticals' future stacks up against the industry? In that case, our free report is a great place to start.

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

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Sonoma Pharmaceuticals' to be considered reasonable.  

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 2.0%.   The last three years don't look nice either as the company has shrunk revenue by 41% in aggregate.  So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.  

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 39% over the next year.  With the industry only predicted to deliver 17%, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that Sonoma Pharmaceuticals' P/S sits below the majority of other companies.  Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.  

The Key Takeaway

Shares in Sonoma Pharmaceuticals have risen appreciably however, its P/S is still subdued.      Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

To us, it seems Sonoma Pharmaceuticals currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry.  There could be some major risk factors that are placing downward pressure on the P/S ratio.  While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.    

Plus, you should also learn about these 4 warning signs we've spotted with Sonoma Pharmaceuticals (including 3 which can't be ignored).  

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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