DarioHealth Corp. (NASDAQ:DRIO) Might Not Be As Mispriced As It Looks
It's not a stretch to say that DarioHealth Corp.'s (NASDAQ:DRIO) price-to-sales (or "P/S") ratio of 3.4x right now seems quite "middle-of-the-road" for companies in the Medical Equipment industry in the United States, where the median P/S ratio is around 3.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
See our latest analysis for DarioHealth
What Does DarioHealth's P/S Mean For Shareholders?
Recent times have been advantageous for DarioHealth as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on DarioHealth.
What Are Revenue Growth Metrics Telling Us About The P/S?
DarioHealth's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
Retrospectively, the last year delivered an exceptional 35% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 266% 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 climb by 36% per annum during the coming three years according to the five analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 9.9% per annum, which is noticeably less attractive.
With this information, we find it interesting that DarioHealth is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.
The Bottom Line On DarioHealth's P/S
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.
Looking at DarioHealth's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.
Don't forget that there may be other risks. For instance, we've identified 3 warning signs for DarioHealth that you should be aware of.
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.
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