With a price-to-sales (or "P/S") ratio of 1.3x Baxter International Inc. (NYSE:BAX) may be sending very bullish signals at the moment, given that almost half of all the Medical Equipment companies in the United States have P/S ratios greater than 3.4x and even P/S higher than 8x are not unusual. 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.

See our latest analysis for Baxter International

How Has Baxter International Performed Recently?

Baxter International's revenue growth of late has been pretty similar to most other companies. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. Those who are bullish on Baxter International will be hoping that this isn't the case.

How Is Baxter International's Revenue Growth Trending?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 7.0% last year. This was backed up an excellent period prior to see revenue up by 33% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 2.2% per year during the coming three years according to the analysts following the company. With the industry predicted to deliver 9.8% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Baxter International's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Baxter International's 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.

As we suspected, our examination of Baxter International'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. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 3 warning signs for Baxter International (1 is significant!) that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.