Why Investors Shouldn't Be Surprised By MDxHealth SA's (EBR:MDXH) 29% Share Price Plunge

MDxHealth SA (EBR:MDXH) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 67% loss during that time.

Following the heavy fall in price, MDxHealth's price-to-sales (or "P/S") ratio of 1.1x might make it look like a strong buy right now compared to the wider Biotechs industry in Belgium, where around half of the companies have P/S ratios above 9.7x and even P/S above 34x are quite common. 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.

Check out our latest analysis for MDxHealth

What Does MDxHealth's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, MDxHealth has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on MDxHealth.

How Is MDxHealth's Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 126% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 21% per annum during the coming three years according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 41% per annum, which is noticeably more attractive.

With this in consideration, its clear as to why MDxHealth'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.

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

MDxHealth's P/S looks about as weak as its stock price lately. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of MDxHealth'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.

We don't want to rain on the parade too much, but we did also find 4 warning signs for MDxHealth (2 make us uncomfortable!) that you need to be mindful of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.