Investors Appear Satisfied With Shape Robotics A/S' (CPH:SHAPE) Prospects

When close to half the companies in the Consumer Services industry in Denmark have price-to-sales ratios (or "P/S") below 0.9x, you may consider Shape Robotics A/S (CPH:SHAPE) as a stock to avoid entirely with its 3.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Shape Robotics

What Does Shape Robotics' P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, Shape Robotics has been doing very well. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shape Robotics' earnings, revenue and cash flow.

How Is Shape Robotics' Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 177%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to decline by 2.3% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.

With this in mind, it's clear to us why Shape Robotics' P/S exceeds that of its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the industry. Nonetheless, with most other businesses facing an uphill battle, staying on its current revenue path is no certainty.

What Does Shape Robotics' P/S Mean For Investors?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Shape Robotics revealed its growing revenue over the medium-term is helping prop up its high P/S compared to its peers, given the industry is set to shrink. It could be said that investors feel this revenue growth will continue into the future, justifying a higher P/S ratio. We still remain cautious about the company's ability to stay its recent course and swim against the current of the broader industry turmoil. Although, if the company's relative performance doesn't change it will continue to provide strong support to the share price.

Before you take the next step, you should know about the 3 warning signs for Shape Robotics that we have uncovered.

If you're unsure about the strength of Shape Robotics' 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.