The QuidelOrtho Corporation (NASDAQ:QDEL) share price has fared very poorly over the last month, falling by a substantial 41%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 54% loss during that time.

Since its price has dipped substantially, QuidelOrtho's price-to-sales (or "P/S") ratio of 0.9x might make it look like a strong buy right now compared to the wider Medical Equipment industry in the United States, where around half of the companies have P/S ratios above 3.4x and even P/S above 8x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

How QuidelOrtho Has Been Performing

While the industry has experienced revenue growth lately, QuidelOrtho's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. 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.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered a frustrating 8.1% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 80% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 1.4% per annum over the next three years. With the industry predicted to deliver 9.7% growth per annum, the company is positioned for a weaker revenue result.

In light of this, it's understandable that QuidelOrtho's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From QuidelOrtho's P/S?

Shares in QuidelOrtho have plummeted and its P/S has followed suit. 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.

As expected, our analysis of QuidelOrtho's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You need to take note of risks, for example - QuidelOrtho has 2 warning signs (and 1 which can't be ignored) we think you should know about.

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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