Potential Upside For MedAvail Holdings, Inc. (NASDAQ:MDVL) Not Without Risk
There wouldn't be many who think MedAvail Holdings, Inc.'s (NASDAQ:MDVL) price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S for the Consumer Retailing industry in the United States is very similar. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
Check out our latest analysis for MedAvail Holdings
What Does MedAvail Holdings' Recent Performance Look Like?
Recent times have been quite advantageous for MedAvail Holdings as its revenue has been rising very briskly. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on MedAvail Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on MedAvail Holdings will help you shine a light on its historical performance.
Do Revenue Forecasts Match The P/S Ratio?
MedAvail Holdings' 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.
Taking a look back first, we see that the company grew revenue by an impressive 33% last year. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.
Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 4.1% shows it's noticeably more attractive.
With this information, we find it interesting that MedAvail Holdings is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.
The Final Word
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.
To our surprise, MedAvail Holdings revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with MedAvail Holdings (at least 3 which are significant), and understanding these should be part of your investment process.
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.
