Nu Skin Enterprises, Inc. (NYSE:NUS) Shares Fly 28% But Investors Aren't Buying For Growth

Despite an already strong run, Nu Skin Enterprises, Inc. (NYSE:NUS) shares have been powering on, with a gain of 28% in the last thirty days. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 4.6% in the last twelve months.

In spite of the firm bounce in price, considering around half the companies operating in the United States' Personal Products industry have price-to-sales ratios (or "P/S") above 1.3x, you may still consider Nu Skin Enterprises as an solid investment opportunity with its 0.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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See our latest analysis for Nu Skin Enterprises

What Does Nu Skin Enterprises' P/S Mean For Shareholders?

For example, consider that Nu Skin Enterprises' financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. If you 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.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Nu Skin Enterprises' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 12% decrease to the company's top line. As a result, revenue from three years ago have also fallen 36% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 3.5% shows it's an unpleasant look.

With this information, we are not surprised that Nu Skin Enterprises is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does Nu Skin Enterprises' P/S Mean For Investors?

Nu Skin Enterprises' stock price has surged recently, but its but its P/S still remains modest. 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.

Our examination of Nu Skin Enterprises confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Nu Skin Enterprises (1 makes us a bit uncomfortable) you should be aware of.

If you're unsure about the strength of Nu Skin Enterprises' 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.