908 Devices Inc. (NASDAQ:MASS) shares have continued their recent momentum with a 34% gain in the last month alone. Unfortunately, despite the strong performance over the last month, the full year gain of 7.0% isn't as attractive.
After such a large jump in price, you could be forgiven for thinking 908 Devices is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 6.1x, considering almost half the companies in the United States' Electronic industry have P/S ratios below 1.7x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.
Check out our latest analysis for 908 Devices
What Does 908 Devices' P/S Mean For Shareholders?
908 Devices could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. If not, then existing shareholders may be extremely nervous about the viability of the share price.
What Are Revenue Growth Metrics Telling Us About The High P/S?
908 Devices' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 6.9%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 61% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.
Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 15% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 7.0%, which is noticeably less attractive.
With this in mind, it's not hard to understand why 908 Devices' P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Final Word
908 Devices' P/S has grown nicely over the last month thanks to a handy boost in the share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
As we suspected, our examination of 908 Devices' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. 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.
It is also worth noting that we have found 3 warning signs for 908 Devices that you need to take into consideration.
If you're unsure about the strength of 908 Devices' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.
