Apyx Medical Corporation (NASDAQ:APYX) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 38% share price drop.

Since its price has dipped substantially, Apyx Medical may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.4x, considering almost half of all companies in the Medical Equipment industry in the United States have P/S ratios greater than 3.5x and even P/S higher than 7x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

What Does Apyx Medical's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Apyx Medical has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Is There Any Revenue Growth Forecasted For Apyx Medical?

The only time you'd be truly comfortable seeing a P/S as depressed as Apyx Medical's is when the company's growth is on track to lag the industry decidedly.

If we review the last year of revenue growth, the company posted a worthy increase of 3.2%. This was backed up an excellent period prior to see revenue up by 104% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 18% each year as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 9.5% per year, which is noticeably less attractive.

With this information, we find it odd that Apyx Medical 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.

The Key Takeaway

Shares in Apyx Medical have plummeted and its P/S has followed suit. 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.

Apyx Medical's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. 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 4 warning signs with Apyx Medical (at least 1 which is potentially serious), and understanding them should be part of your investment process.

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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