AtriCure, Inc.'s (NASDAQ:ATRC) Popularity With Investors Is Clear
AtriCure, Inc.'s (NASDAQ:ATRC) price-to-sales (or "P/S") ratio of 6.1x might make it look like a strong sell right now compared to the Medical Equipment industry in the United States, where around half of the companies have P/S ratios below 3.5x and even P/S below 1.5x 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 lofty.
View our latest analysis for AtriCure
How AtriCure Has Been Performing
With revenue growth that's superior to most other companies of late, AtriCure has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on AtriCure.
What Are Revenue Growth Metrics Telling Us About The High P/S?
The only time you'd be truly comfortable seeing a P/S as steep as AtriCure's is when the company's growth is on track to outshine the industry decidedly.
Retrospectively, the last year delivered an exceptional 20% gain to the company's top line. Pleasingly, revenue has also lifted 43% in aggregate from three years ago, thanks to the last 12 months of growth. 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 three years should generate growth of 15% each year as estimated by the seven analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 8.9% per annum, which is noticeably less attractive.
With this in mind, it's not hard to understand why AtriCure's 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
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.
As we suspected, our examination of AtriCure's 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. It's hard to see the share price falling strongly in the near future under these circumstances.
You always need to take note of risks, for example - AtriCure has 2 warning signs we think you should be aware of.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.
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