AtriCure, Inc. (NASDAQ:ATRC) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 42% in that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about AtriCure's P/S ratio of 3.1x, since the median price-to-sales (or "P/S") ratio for the Medical Equipment industry in the United States is also close to 3.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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

With revenue growth that's superior to most other companies of late, AtriCure has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. 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 not quite in favour.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like AtriCure's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 21% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 93% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 14% per annum as estimated by the nine analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 10% each year, which is noticeably less attractive.

With this information, we find it interesting that AtriCure is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

Following AtriCure's share price tumble, its P/S is just clinging on to the industry median P/S. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Despite enticing revenue growth figures that outpace the industry, AtriCure's P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with AtriCure, and understanding these should be part of your investment process.

If these risks are making you reconsider your opinion on AtriCure, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.