Revenues Working Against Creo Medical Group PLC's (LON:CREO) Share Price Following 27% Dive

Creo Medical Group PLC (LON:CREO) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. For any long-term shareholders, the last month ends a year to forget by locking in a 63% share price decline.

After such a large drop in price, Creo Medical Group's price-to-sales (or "P/S") ratio of 1.8x might make it look like a buy right now compared to the Medical Equipment industry in the United Kingdom, where around half of the companies have P/S ratios above 2.7x and even P/S above 6x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Creo Medical Group

How Creo Medical Group Has Been Performing

Creo Medical Group could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

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

There's an inherent assumption that a company should underperform the industry for P/S ratios like Creo Medical Group's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 3.4%. This was backed up an excellent period prior to see revenue up by 36% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the three analysts covering the company suggest revenue growth is heading into negative territory, declining 12% per annum over the next three years. With the industry predicted to deliver 8.2% growth each year, that's a disappointing outcome.

In light of this, it's understandable that Creo Medical Group's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Final Word

Creo Medical Group's recently weak share price has pulled its P/S back below other Medical Equipment companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Creo Medical Group's P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Creo Medical Group's poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Creo Medical Group that you should be aware of.

If you're unsure about the strength of Creo Medical Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.