There Is A Reason iCAD, Inc.'s (NASDAQ:ICAD) Price Is Undemanding
With a price-to-sales (or "P/S") ratio of 1.3x iCAD, Inc. (NASDAQ:ICAD) may be sending bullish signals at the moment, given that almost half of all the Healthcare Services companies in the United States have P/S ratios greater than 2.6x and even P/S higher than 6x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for iCAD
How iCAD Has Been Performing
While the industry has experienced revenue growth lately, iCAD's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on iCAD.
Do Revenue Forecasts Match The Low P/S Ratio?
The only time you'd be truly comfortable seeing a P/S as low as iCAD's is when the company's growth is on track to lag the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 19%. The last three years don't look nice either as the company has shrunk revenue by 16% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 12% per year over the next three years. That's shaping up to be materially lower than the 18% per annum growth forecast for the broader industry.
In light of this, it's understandable that iCAD'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.
What We Can Learn From iCAD'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.
We've established that iCAD maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
We don't want to rain on the parade too much, but we did also find 3 warning signs for iCAD that you need to be mindful 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).
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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