Despite an already strong run, Accuray Incorporated (NASDAQ:ARAY) shares have been powering on, with a gain of 27% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 21% in the last twelve months.

Although its price has surged higher, Accuray's price-to-sales (or "P/S") ratio of 0.5x might still make it look like a strong buy right now compared to the wider Medical Equipment industry in the United States, where around half of the companies have P/S ratios above 3.3x and even P/S above 7x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

What Does Accuray's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Accuray's 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. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Accuray would need to produce anemic growth that's substantially trailing the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Still, the latest three year period was better as it's delivered a decent 13% overall rise in revenue. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Looking ahead now, revenue is anticipated to climb by 3.9% during the coming year according to the four analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 9.3%, which is noticeably more attractive.

In light of this, it's understandable that Accuray's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Accuray's P/S Mean For Investors?

Accuray's recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

As expected, our analysis of Accuray's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Accuray (at least 1 which is significant), and understanding them should be part of your investment process.

If you're unsure about the strength of Accuray'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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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.