You may think that with a price-to-sales (or "P/S") ratio of 1x ICU Medical, Inc. (NASDAQ:ICUI) is definitely a stock worth checking out, seeing as almost half of all the Medical Equipment companies in the United States have P/S ratios greater than 3.1x and even P/S above 8x aren't out of the ordinary.   However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.  

NasdaqGS:ICUI Price to Sales Ratio vs Industry April 18th 2024

How Has ICU Medical Performed Recently?

ICU Medical 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.    

Want the full picture on analyst estimates for the company? Then our free report on ICU Medical will help you uncover what's on the horizon.  

Do Revenue Forecasts Match The Low P/S Ratio?  

ICU Medical's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.  

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago.   However, a few strong years before that means that it was still able to grow revenue by an impressive 78% in total over the last three years.  Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.  

Looking ahead now, revenue is anticipated to climb by 1.9% per year during the coming three years according to the five analysts following the company.  Meanwhile, the rest of the industry is forecast to expand by 10% each year, which is noticeably more attractive.

With this information, we can see why ICU Medical is trading at a P/S lower than the industry.  It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.  

The Key Takeaway

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of ICU Medical's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S.  Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises.  The company will need a change of fortune to justify the P/S rising higher in the future.    

We don't want to rain on the parade too much, but we did also find 2 warning signs for ICU Medical (1 is concerning!) that you need to be mindful 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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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.