There's No Escaping Conformis, Inc.'s (NASDAQ:CFMS) Muted Revenues Despite A 86% Share Price Rise
Conformis, Inc. (NASDAQ:CFMS) shareholders would be excited to see that the share price has had a great month, posting a 86% gain and recovering from prior weakness. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 69% share price drop in the last twelve months.
Even after such a large jump in price, Conformis may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.3x, considering almost half of all companies in the Medical Equipment industry in the United States have P/S ratios greater than 4.1x and even P/S higher than 9x 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 Conformis
What Does Conformis' Recent Performance Look Like?
While the industry has experienced revenue growth lately, Conformis' 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.
Keen to find out how analysts think Conformis' future stacks up against the industry? In that case, our free report is a great place to start.
How Is Conformis' Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as depressed as Conformis' is when the company's growth is on track to lag the industry decidedly.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 42%. This means it has also seen a slide in revenue over the longer-term as revenue is down 19% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 7.8% as estimated by the two analysts watching the company. With the industry predicted to deliver 8.4% growth, that's a disappointing outcome.
In light of this, it's understandable that Conformis' P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. 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
Even after such a strong price move, Conformis' P/S still trails the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
It's clear to see that Conformis 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. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.
And what about other risks? Every company has them, and we've spotted 5 warning signs for Conformis (of which 2 are potentially serious!) you should know about.
If these risks are making you reconsider your opinion on Conformis, explore our interactive list of high quality stocks to get an idea of what else is out there.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
