Lacklustre Performance Is Driving Surgical Innovations Group plc's (LON:SUN) Low P/S

When close to half the companies in the Medical Equipment industry in the United Kingdom have price-to-sales ratios (or "P/S") above 2.7x, you may consider Surgical Innovations Group plc (LON:SUN) as a highly attractive investment with its 0.4x P/S ratio. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Surgical Innovations Group

What Does Surgical Innovations Group's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Surgical Innovations Group's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For Surgical Innovations Group?

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

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Still, the latest three year period has seen an excellent 31% overall rise in revenue, in spite of its uninspiring short-term performance. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

Turning to the outlook, the next year should generate growth of 4.0% as estimated by the only analyst watching the company. With the industry predicted to deliver 6.6% growth, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Surgical Innovations Group's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As expected, our analysis of Surgical Innovations Group's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for Surgical Innovations Group you should be aware of.

If you're unsure about the strength of Surgical Innovations Group's 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.