Sedana Medical AB (publ)'s (STO:SEDANA) 36% Cheaper Price Remains In Tune With Revenues

Sedana Medical AB (publ) (STO:SEDANA) shareholders that were waiting for something to happen have been dealt a blow with a 36% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 11% in that time.

Although its price has dipped substantially, Sedana Medical's price-to-sales (or "P/S") ratio of 9x might still make it look like a strong sell right now compared to other companies in the Medical Equipment industry in Sweden, where around half of the companies have P/S ratios below 4.8x and even P/S below 2x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Sedana Medical

What Does Sedana Medical's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Sedana Medical has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might 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 Sedana Medical.

Is There Enough Revenue Growth Forecasted For Sedana Medical?

Sedana Medical's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 23% last year. Revenue has also lifted 11% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 39% each year as estimated by the dual analysts watching the company. That's shaping up to be materially higher than the 15% per annum growth forecast for the broader industry.

In light of this, it's understandable that Sedana Medical's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Sedana Medical's P/S

A significant share price dive has done very little to deflate Sedana Medical's very lofty P/S. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Sedana Medical's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Sedana Medical that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.