Pulmonx Corporation (NASDAQ:LUNG) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 12% in that time.
Although its price has dipped substantially, Pulmonx's price-to-sales (or "P/S") ratio of 5.6x might still make it look like a strong sell right now compared to other companies in the Medical Equipment industry in the United States, where around half of the companies have P/S ratios below 3.6x and even P/S below 1.4x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.
NasdaqGS:LUNG Price to Sales Ratio vs Industry February 28th 2024
How Has Pulmonx Performed Recently?
Recent times have been advantageous for Pulmonx as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Pulmonx.
How Is Pulmonx's Revenue Growth Trending?
Pulmonx'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.
Taking a look back first, we see that the company grew revenue by an impressive 28% last year. Pleasingly, revenue has also lifted 110% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Turning to the outlook, the next three years should generate growth of 19% per year as estimated by the six analysts watching the company. That's shaping up to be materially higher than the 9.5% per year growth forecast for the broader industry.
With this information, we can see why Pulmonx is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Final Word
A significant share price dive has done very little to deflate Pulmonx's very lofty P/S. 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.
We've established that Pulmonx maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Medical Equipment industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.
We don't want to rain on the parade too much, but we did also find 3 warning signs for Pulmonx that you need to be mindful of.
If you're unsure about the strength of Pulmonx's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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