MiMedx Group, Inc.'s (NASDAQ:MDXG) price-to-sales (or "P/S") ratio of 3x might make it look like a strong buy right now compared to the Biotechs industry in the United States, where around half of the companies have P/S ratios above 13.7x and even P/S above 69x 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 MiMedx Group's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, MiMedx Group has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

How Is MiMedx Group's Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like MiMedx Group's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 20% last year. Revenue has also lifted 30% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 12% each year during the coming three years according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 165% each year, which is noticeably more attractive.

With this in consideration, its clear as to why MiMedx Group's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From MiMedx Group's P/S?

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.

As we suspected, our examination of MiMedx Group's analyst forecasts revealed that its inferior revenue outlook is contributing 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. The company will need a change of fortune to justify the P/S rising higher in the future.

There are also other vital risk factors to consider and we've discovered 3 warning signs for MiMedx Group (1 is potentially serious!) that you should be aware of before investing here.

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).

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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.