Sedana Medical AB (publ)'s (STO:SEDANA) Shares Climb 35% But Its Business Is Yet to Catch Up

Those holding Sedana Medical AB (publ) (STO:SEDANA) shares would be relieved that the share price has rebounded 35% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 55% share price decline over the last year.

Since its price has surged higher, Sedana Medical may be sending sell signals at present with a price-to-sales (or "P/S") ratio of 5.7x, when you consider almost half of the companies in the Medical Equipment industry in Sweden have P/S ratios under 4.6x and even P/S lower than 2x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Our free stock report includes 2 warning signs investors should be aware of before investing in Sedana Medical. Read for free now.

View our latest analysis for Sedana Medical

What Does Sedana Medical's Recent Performance Look Like?

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.

How Is Sedana Medical's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 16%. As a result, it also grew revenue by 12% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 25% each year over the next three years. With the industry predicted to deliver 58% growth per year, the company is positioned for a weaker revenue result.

With this information, we find it concerning that Sedana Medical is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Sedana Medical's P/S?

The large bounce in Sedana Medical's shares has lifted the company's P/S handsomely. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've concluded that Sedana Medical currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.

Plus, you should also learn about these 2 warning signs we've spotted with Sedana Medical.

If you're unsure about the strength of Sedana Medical'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.