DermTech, Inc. (NASDAQ:DMTK) Not Doing Enough For Some Investors As Its Shares Slump 37%
Unfortunately for some shareholders, the DermTech, Inc. (NASDAQ:DMTK) share price has dived 37% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 70% share price decline.
Since its price has dipped substantially, DermTech may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 5x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 11.4x and even P/S higher than 55x 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.
Check out our latest analysis for DermTech
How DermTech Has Been Performing
Recent times haven't been great for DermTech as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. 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.
Keen to find out how analysts think DermTech's future stacks up against the industry? In that case, our free report is a great place to start.
Is There Any Revenue Growth Forecasted For DermTech?
The only time you'd be truly comfortable seeing a P/S as depressed as DermTech'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 9.6%. This was backed up an excellent period prior to see revenue up by 230% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.
Turning to the outlook, the next year should generate growth of 28% as estimated by the six analysts watching the company. That's shaping up to be materially lower than the 95% growth forecast for the broader industry.
In light of this, it's understandable that DermTech's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Final Word
Shares in DermTech have plummeted and its P/S has followed suit. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
As expected, our analysis of DermTech's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.
Plus, you should also learn about these 6 warning signs we've spotted with DermTech (including 2 which are potentially serious).
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.
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