Sight Sciences, Inc. (NASDAQ:SGHT) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. The good news is that in the last year, the stock has shone bright like a diamond, gaining 141%.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Sight Sciences' P/S ratio of 2.7x, since the median price-to-sales (or "P/S") ratio for the Medical Equipment industry in the United States is also close to 3.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

What Does Sight Sciences' P/S Mean For Shareholders?

Sight Sciences could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Is There Some Revenue Growth Forecasted For Sight Sciences?

Sight Sciences' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.0%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 84% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 11% each year during the coming three years according to the seven analysts following the company. With the industry only predicted to deliver 9.3% each year, the company is positioned for a stronger revenue result.

With this information, we find it interesting that Sight Sciences is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

With its share price dropping off a cliff, the P/S for Sight Sciences looks to be in line with the rest of the Medical Equipment industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Looking at Sight Sciences' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Sight Sciences (1 can't be ignored!) that you should be aware of before investing here.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.