Unfortunately for some shareholders, the ProSomnus, Inc. (NASDAQ:OSA) share price has dived 30% in the last thirty days, prolonging recent pain.    The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 90% loss during that time.  

Following the heavy fall in price, ProSomnus' price-to-sales (or "P/S") ratio of 0.4x might make it look like a strong buy right now compared to the wider Medical Equipment industry in the United States, where around half of the companies have P/S ratios above 3.5x and even P/S above 8x are quite common.   Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.  

NasdaqGM:OSA Price to Sales Ratio vs Industry February 23rd 2024

How ProSomnus Has Been Performing

Recent times have been advantageous for ProSomnus as its revenues have been rising faster than most other companies.   It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio.  If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.    

Keen to find out how analysts think ProSomnus' 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 Low P/S?  

In order to justify its P/S ratio, ProSomnus would need to produce anemic growth that's substantially trailing the industry.  

If we review the last year of revenue growth, the company posted a terrific increase of 42%.   The latest three year period has also seen an excellent 209% overall rise in revenue, aided by its short-term performance.  So we can start by confirming that the company has done a great job of growing revenue over that time.  

Turning to the outlook, the next year should generate growth of 26%  as estimated by the dual analysts watching the company.  With the industry only predicted to deliver 8.6%, the company is positioned for a stronger revenue result.

With this information, we find it odd that ProSomnus is trading at a P/S lower than the industry.  Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.  

What Does ProSomnus' P/S Mean For Investors?

ProSomnus' P/S looks about as weak as its stock price lately.      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.

To us, it seems ProSomnus currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry.  There could be some major risk factors that are placing downward pressure on the P/S ratio.  While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.    

It's always necessary to consider the ever-present spectre of investment risk. We've identified 6 warning signs with ProSomnus (at least 4 which shouldn't be ignored), and understanding them should be part of your investment process.  

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.