Axonics, Inc.'s (NASDAQ:AXNX) price-to-sales (or "P/S") ratio of 8.8x may look like a poor investment opportunity when you consider close to half the companies in the Medical Equipment industry in the United States have P/S ratios below 3.3x.   However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.  

Check out our latest analysis for Axonics

NasdaqGS:AXNX Price to Sales Ratio vs Industry January 3rd 2024

What Does Axonics' Recent Performance Look Like?

Axonics 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.  You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.    

Keen to find out how analysts think Axonics' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The High P/S?  

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Axonics' to be considered reasonable.  

Retrospectively, the last year delivered an exceptional 42% gain to the company's top line.   The latest three year period has also seen an excellent 295% overall rise in revenue, aided by its short-term performance.  Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.  

Looking ahead now, revenue is anticipated to climb by 21% per annum during the coming three years according to the analysts following the company.  With the industry only predicted to deliver 9.8% each year, the company is positioned for a stronger revenue result.

With this information, we can see why Axonics is trading at such a high P/S compared to the industry.  It seems most investors are expecting this strong future growth and are willing to pay more for the stock.  

What We Can Learn From Axonics' P/S?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look into Axonics 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.    

We don't want to rain on the parade too much, but we did also find 1 warning sign for Axonics that you need to be mindful 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.

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.