OraSure Technologies, Inc.'s (NASDAQ:OSUR) price-to-sales (or "P/S") ratio of 1.3x might make it look like a buy right now compared to the Medical Equipment industry in the United States, where around half of the companies have P/S ratios above 3.3x and even P/S above 8x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for OraSure Technologies

How OraSure Technologies Has Been Performing

With revenue growth that's superior to most other companies of late, OraSure Technologies has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

How Is OraSure Technologies' Revenue Growth Trending?

OraSure Technologies' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered an exceptional 38% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 186% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 45% during the coming year according to the six analysts following the company. That's not great when the rest of the industry is expected to grow by 8.7%.

In light of this, it's understandable that OraSure Technologies' P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of OraSure Technologies' analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

Before you settle on your opinion, we've discovered 1 warning sign for OraSure Technologies that you should be aware of.

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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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.