Some Shareholders Feeling Restless Over Qatari German Company for Medical Devices (Q.P.S.C.)'s (DSM:QGMD) P/S Ratio

Qatari German Company for Medical Devices (Q.P.S.C.)'s (DSM:QGMD) price-to-sales (or "P/S") ratio of 4.9x may not look like an appealing investment opportunity when you consider close to half the companies in the Medical Equipment industry in Qatar have P/S ratios below 3.6x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for Qatari German Company for Medical Devices (Q.P.S.C.)

How Has Qatari German Company for Medical Devices (Q.P.S.C.) Performed Recently?

As an illustration, revenue has deteriorated at Qatari German Company for Medical Devices (Q.P.S.C.) over the last year, which is not ideal at all. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. 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 Qatari German Company for Medical Devices (Q.P.S.C.)'s earnings, revenue and cash flow.

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

Qatari German Company for Medical Devices (Q.P.S.C.)'s P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 10.0%. Even so, admirably revenue has lifted 86% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

It's interesting to note that the rest of the industry is similarly expected to grow by 23% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Qatari German Company for Medical Devices (Q.P.S.C.) is trading at a high P/S compared to the industry. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Nevertheless, they may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On Qatari German Company for Medical Devices (Q.P.S.C.)'s P/S

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.

Our examination of Qatari German Company for Medical Devices (Q.P.S.C.) revealed its three-year revenue trends aren't impacting its high P/S as much as we would have predicted, given they look similar to current industry expectations. Right now we are uncomfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless there is a significant improvement in the company's medium-term trends, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Qatari German Company for Medical Devices (Q.P.S.C.) (of which 1 is significant!) you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.