Alphatec Holdings, Inc.'s (NASDAQ:ATEC) price-to-sales (or "P/S") ratio of 4.1x may not look like an appealing investment opportunity when you consider close to half the companies in the Medical Equipment industry in the United States have P/S ratios below 3.1x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for Alphatec Holdings

What Does Alphatec Holdings' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Alphatec Holdings has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Alphatec Holdings would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered an exceptional 41% gain to the company's top line. The latest three year period has also seen an excellent 238% overall rise in revenue, aided by its short-term performance. 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 18% each year during the coming three years according to the ten analysts following the company. With the industry only predicted to deliver 9.7% per annum, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Alphatec Holdings' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Alphatec Holdings' 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.

Our look into Alphatec Holdings shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 4 warning signs for Alphatec Holdings (1 is significant!) that we have uncovered.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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