Investors Still Waiting For A Pull Back In Medartis Holding AG (VTX:MED)

Medartis Holding AG's (VTX:MED) price-to-sales (or "P/S") ratio of 4.3x may not look like an appealing investment opportunity when you consider close to half the companies in the Medical Equipment industry in Switzerland have P/S ratios below 3.5x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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See our latest analysis for Medartis Holding

What Does Medartis Holding's P/S Mean For Shareholders?

Recent revenue growth for Medartis Holding has been in line with the industry. Perhaps the market is expecting future revenue performance to improve, justifying the currently elevated P/S. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Medartis Holding's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Medartis Holding's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 7.3% last year. Pleasingly, revenue has also lifted 37% 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 year should generate growth of 26% as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 5.5% growth forecast for the broader industry.

In light of this, it's understandable that Medartis Holding's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

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.

Our look into Medartis Holding shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Medartis Holding with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Medartis Holding, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.