Sanara MedTech Inc. (NASDAQ:SMTI) shares have had a really impressive month, gaining 38% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 9.5% isn't as impressive.
After such a large jump in price, you could be forgiven for thinking Sanara MedTech is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 5.4x, considering almost half the companies in the United States' Medical Equipment industry have P/S ratios below 3.1x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for Sanara MedTech
What Does Sanara MedTech's Recent Performance Look Like?
Sanara MedTech certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.
What Are Revenue Growth Metrics Telling Us About The High P/S?
In order to justify its P/S ratio, Sanara MedTech would need to produce outstanding growth that's well in excess of the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 67%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.
Looking ahead now, revenue is anticipated to climb by 28% during the coming year according to the lone analyst following the company. That's shaping up to be materially higher than the 8.7% growth forecast for the broader industry.
With this information, we can see why Sanara MedTech is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
What We Can Learn From Sanara MedTech's P/S?
Shares in Sanara MedTech have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.
We've established that Sanara MedTech maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Medical Equipment industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
Having said that, be aware Sanara MedTech is showing 1 warning sign in our investment analysis, you should know about.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
