A Piece Of The Puzzle Missing From STRATA Skin Sciences, Inc.'s (NASDAQ:SSKN) 26% Share Price Climb
The STRATA Skin Sciences, Inc. (NASDAQ:SSKN) share price has done very well over the last month, posting an excellent gain of 26%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 25% over that time.
Even after such a large jump in price, STRATA Skin Sciences' price-to-sales (or "P/S") ratio of 1x might still 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 3.8x and even P/S above 9x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.
View our latest analysis for STRATA Skin Sciences
What Does STRATA Skin Sciences' P/S Mean For Shareholders?
With revenue growth that's superior to most other companies of late, STRATA Skin Sciences has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.
Want the full picture on analyst estimates for the company? Then our free report on STRATA Skin Sciences will help you uncover what's on the horizon.
Do Revenue Forecasts Match The Low P/S Ratio?
The only time you'd be truly comfortable seeing a P/S as depressed as STRATA Skin Sciences' is when the company's growth is on track to lag the industry decidedly.
Retrospectively, the last year delivered an exceptional 21% gain to the company's top line. As a result, it also grew revenue by 14% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to climb by 17% each year during the coming three years according to the dual analysts following the company. With the industry only predicted to deliver 9.0% per year, the company is positioned for a stronger revenue result.
In light of this, it's peculiar that STRATA Skin Sciences' P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
The Key Takeaway
Even after such a strong price move, STRATA Skin Sciences' P/S still trails the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
STRATA Skin Sciences' 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. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.
Before you settle on your opinion, we've discovered 3 warning signs for STRATA Skin Sciences (1 shouldn't be ignored!) 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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