Those holding EDAP TMS S.A. (NASDAQ:EDAP) shares would be relieved that the share price has rebounded 25% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 42% over that time.
Although its price has surged higher, you could still be forgiven for feeling indifferent about EDAP TMS' P/S ratio of 3.8x, since the median price-to-sales (or "P/S") ratio for the Medical Equipment industry in the United States is also close to 3.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
Check out our latest analysis for EDAP TMS
NasdaqGM:EDAP Price to Sales Ratio vs Industry January 25th 2024
What Does EDAP TMS' Recent Performance Look Like?
Recent times haven't been great for EDAP TMS as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. However, if this isn't the case, investors might get caught out paying too much for the stock.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on EDAP TMS.
How Is EDAP TMS' Revenue Growth Trending?
The only time you'd be comfortable seeing a P/S like EDAP TMS' is when the company's growth is tracking the industry closely.
If we review the last year of revenue growth, the company posted a worthy increase of 5.9%. Pleasingly, revenue has also lifted 48% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.
Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 17% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 10% each year, which is noticeably less attractive.
With this in consideration, we find it intriguing that EDAP TMS' P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.
What We Can Learn From EDAP TMS' P/S?
EDAP TMS appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
Looking at EDAP TMS' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.
We don't want to rain on the parade too much, but we did also find 2 warning signs for EDAP TMS that you need to be mindful of.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.