Surmodics, Inc. (NASDAQ:SRDX) Stocks Shoot Up 36% But Its P/S Still Looks Reasonable
Surmodics, Inc. (NASDAQ:SRDX) shareholders are no doubt pleased to see that the share price has bounced 36% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 44% over that time.
Although its price has surged higher, there still wouldn't be many who think Surmodics' price-to-sales (or "P/S") ratio of 3.3x is worth a mention when the median P/S in the United States' Medical Equipment industry is similar at about 3.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
View our latest analysis for Surmodics
How Has Surmodics Performed Recently?
Surmodics 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. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.
Want the full picture on analyst estimates for the company? Then our free report on Surmodics will help you uncover what's on the horizon.
Is There Some Revenue Growth Forecasted For Surmodics?
There's an inherent assumption that a company should be matching the industry for P/S ratios like Surmodics' to be considered reasonable.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 3.7%. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.
Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 6.2% over the next year. With the industry predicted to deliver 6.1% growth , the company is positioned for a comparable revenue result.
In light of this, it's understandable that Surmodics' P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.
What We Can Learn From Surmodics' P/S?
Surmodics' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.
Our look at Surmodics' revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. Unless these conditions change, they will continue to support the share price at these levels.
You should always think about risks. Case in point, we've spotted 1 warning sign for Surmodics you should be aware of.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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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