The AxoGen, Inc. (NASDAQ:AXGN) share price has softened a substantial 28% over the previous 30 days, handing back much of the gains the stock has made lately. The recent drop has obliterated the annual return, with the share price now down 6.6% over that longer period.
Following the heavy fall in price, AxoGen may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 2.1x, considering almost half of all companies in the Medical Equipment industry in the United States have P/S ratios greater than 3.4x and even P/S higher than 8x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
NasdaqCM:AXGN Price to Sales Ratio vs Industry March 17th 2024
What Does AxoGen's Recent Performance Look Like?
With revenue growth that's superior to most other companies of late, AxoGen has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. 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 out of favour.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on AxoGen.
Do Revenue Forecasts Match The Low P/S Ratio?
In order to justify its P/S ratio, AxoGen would need to produce sluggish growth that's trailing the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 15%. Pleasingly, revenue has also lifted 42% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 12% per annum over the next three years. With the industry only predicted to deliver 9.5% per annum, the company is positioned for a stronger revenue result.
With this information, we find it odd that AxoGen is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
The Final Word
The southerly movements of AxoGen's shares means its P/S is now sitting at a pretty low level. 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.
To us, it seems AxoGen currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.
Before you settle on your opinion, we've discovered 2 warning signs for AxoGen that you should be aware 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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