Yahoo Finance Treace Medical Concepts, Inc.'s (NASDAQ:TMCI) P/S Is On The Mark
With a price-to-sales (or "P/S") ratio of 11.2x Treace Medical Concepts, Inc. (NASDAQ:TMCI) may be sending very bearish signals at the moment, given that almost half of all the Medical Equipment companies in the United States have P/S ratios under 3.7x and even P/S lower than 1.5x 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 lofty.
View our latest analysis for Treace Medical Concepts
What Does Treace Medical Concepts' P/S Mean For Shareholders?
With revenue growth that's superior to most other companies of late, Treace Medical Concepts has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Keen to find out how analysts think Treace Medical Concepts' future stacks up against the industry? In that case, our free report is a great place to start.
Is There Enough Revenue Growth Forecasted For Treace Medical Concepts?
The only time you'd be truly comfortable seeing a P/S as steep as Treace Medical Concepts' is when the company's growth is on track to outshine the industry decidedly.
Taking a look back first, we see that the company grew revenue by an impressive 50% last year. Pleasingly, revenue has also lifted 260% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.
Looking ahead now, revenue is anticipated to climb by 25% per annum during the coming three years according to the five analysts following the company. With the industry only predicted to deliver 8.9% per annum, the company is positioned for a stronger revenue result.
In light of this, it's understandable that Treace Medical Concepts' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more 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 Treace Medical Concepts' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.
Before you take the next step, you should know about the 3 warning signs for Treace Medical Concepts that we have uncovered.
If these risks are making you reconsider your opinion on Treace Medical Concepts, 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.
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