You may think that with a price-to-sales (or "P/S") ratio of 1.9x DENTSPLY SIRONA Inc. (NASDAQ:XRAY) is a stock worth checking out, seeing as almost half of all the Medical Equipment companies in the United States have P/S ratios greater than 3.1x and even P/S higher than 8x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for DENTSPLY SIRONA

What Does DENTSPLY SIRONA's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, DENTSPLY SIRONA's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Is There Any Revenue Growth Forecasted For DENTSPLY SIRONA?

The only time you'd be truly comfortable seeing a P/S as low as DENTSPLY SIRONA's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 2.6% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 17% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 3.1% each year over the next three years. That's shaping up to be materially lower than the 9.7% per annum growth forecast for the broader industry.

With this in consideration, its clear as to why DENTSPLY SIRONA's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

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 expected, our analysis of DENTSPLY SIRONA's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about this 1 warning sign we've spotted with DENTSPLY SIRONA.

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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