Those holding Outset Medical, Inc. (NASDAQ:OM) shares would be relieved that the share price has rebounded 28% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 93% share price decline over the last year.

In spite of the firm bounce in price, Outset Medical may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.3x, considering almost half of all companies in the Medical Equipment industry in the United States have P/S ratios greater than 3.3x and even P/S higher than 7x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

What Does Outset Medical's P/S Mean For Shareholders?

Outset Medical hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Want the full picture on analyst estimates for the company? Then our free report on Outset Medical will help you uncover what's on the horizon.

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

The only time you'd be truly comfortable seeing a P/S as depressed as Outset Medical's is when the company's growth is on track to lag the industry decidedly.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 9.9%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 47% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 9.6% each year as estimated by the seven analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 9.2% each year, which is not materially different.

With this in consideration, we find it intriguing that Outset Medical's P/S is lagging behind its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Outset Medical's P/S

Even after such a strong price move, Outset Medical's P/S still trails the rest of the industry. 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.

Our examination of Outset Medical's revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

Plus, you should also learn about these 4 warning signs we've spotted with Outset Medical (including 1 which is a bit unpleasant).

If you're unsure about the strength of Outset Medical'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.