Benign Growth For Medical Developments International Limited (ASX:MVP) Underpins Its Share Price

With a price-to-sales (or "P/S") ratio of 1.5x Medical Developments International Limited (ASX:MVP) may be sending very bullish signals at the moment, given that almost half of all the Pharmaceuticals companies in Australia have P/S ratios greater than 4.7x and even P/S higher than 29x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Medical Developments International

How Has Medical Developments International Performed Recently?

With revenue growth that's inferior to most other companies of late, Medical Developments International has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Keen to find out how analysts think Medical Developments International's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Medical Developments International's Revenue Growth Trending?

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

Retrospectively, the last year delivered a decent 2.5% gain to the company's revenues. Pleasingly, revenue has also lifted 31% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 18% per annum as estimated by the lone analyst watching the company. With the industry predicted to deliver 235% growth each year, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Medical Developments International's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

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.

As we suspected, our examination of Medical Developments International's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Medical Developments International (of which 1 is significant!) you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.