With a median price-to-sales (or "P/S") ratio of close to 3.2x in the Life Sciences industry in the United States, you could be forgiven for feeling indifferent about Mesa Laboratories, Inc.'s (NASDAQ:MLAB) P/S ratio of 2.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

How Has Mesa Laboratories Performed Recently?

There hasn't been much to differentiate Mesa Laboratories' and the industry's retreating revenue lately. It seems that few are expecting the company's revenue performance to deviate much from most other companies, which has held the P/S back. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. At the very least, you'd be hoping that revenue doesn't accelerate downwards if your plan is to pick up some stock while it's not in favour.

What Are Revenue Growth Metrics Telling Us About The P/S?

In order to justify its P/S ratio, Mesa Laboratories would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 1.3% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 61% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 7.7% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 6.9% per annum, which is not materially different.

With this information, we can see why Mesa Laboratories is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

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.

We've seen that Mesa Laboratories maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. 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. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Mesa Laboratories with six simple checks on some of these key factors.

If these risks are making you reconsider your opinion on Mesa Laboratories, 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.