Why We're Not Concerned About SI-BONE, Inc.'s (NASDAQ:SIBN) Share Price
SI-BONE, Inc.'s (NASDAQ:SIBN) price-to-sales (or "P/S") ratio of 6.9x might make it look like a strong sell right now compared to the Medical Equipment industry in the United States, where around half of the companies have P/S ratios below 3.7x and even P/S below 1.5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.
Check out our latest analysis for SI-BONE
What Does SI-BONE's P/S Mean For Shareholders?
With revenue growth that's superior to most other companies of late, SI-BONE has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on SI-BONE.
What Are Revenue Growth Metrics Telling Us About The High P/S?
SI-BONE's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 18%. The strong recent performance means it was also able to grow revenue by 58% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.
Turning to the outlook, the next three years should generate growth of 20% each year as estimated by the six analysts watching the company. That's shaping up to be materially higher than the 8.9% per year growth forecast for the broader industry.
In light of this, it's understandable that SI-BONE's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
What We Can Learn From SI-BONE's P/S?
Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
As we suspected, our examination of SI-BONE's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with SI-BONE, and understanding them should be part of your investment process.
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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