There Is A Reason Trinity Biotech plc's (NASDAQ:TRIB) Price Is Undemanding
You may think that with a price-to-sales (or "P/S") ratio of 0.5x Trinity Biotech plc (NASDAQ:TRIB) is definitely a stock worth checking out, seeing as almost half of all the Medical Equipment companies in the United States have P/S ratios greater than 4x and even P/S above 8x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for Trinity Biotech
What Does Trinity Biotech's Recent Performance Look Like?
Trinity Biotech hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. 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.
Keen to find out how analysts think Trinity Biotech's future stacks up against the industry? In that case, our free report is a great place to start.
How Is Trinity Biotech's Revenue Growth Trending?
In order to justify its P/S ratio, Trinity Biotech would need to produce anemic growth that's substantially trailing the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 20%. The last three years don't look nice either as the company has shrunk revenue by 17% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Looking ahead now, revenue is anticipated to slump, contracting by 4.4% during the coming year according to the lone analyst following the company. That's not great when the rest of the industry is expected to grow by 8.3%.
With this information, we are not surprised that Trinity Biotech is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.
The Key Takeaway
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.
It's clear to see that Trinity Biotech maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.
And what about other risks? Every company has them, and we've spotted 4 warning signs for Trinity Biotech you should know about.
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).
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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