Take Care Before Jumping Onto Allurion Technologies Inc. (NYSE:ALUR) Even Though It's 42% Cheaper

Allurion Technologies Inc. (NYSE:ALUR) shareholders that were waiting for something to happen have been dealt a blow with a 42% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 91% share price decline.

Following the heavy fall in price, it would be understandable if you think Allurion Technologies is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.7x, considering almost half the companies in the United States' Consumer Services industry have P/S ratios above 1.3x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Allurion Technologies

How Allurion Technologies Has Been Performing

Allurion Technologies hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

Do Revenue Forecasts Match The Low P/S Ratio?

Allurion Technologies' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 46%. As a result, revenue from three years ago have also fallen 9.1% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 12% as estimated by the four analysts watching the company. That's shaping up to be similar to the 13% growth forecast for the broader industry.

In light of this, it's peculiar that Allurion Technologies' P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Final Word

Allurion Technologies' recently weak share price has pulled its P/S back below other Consumer Services companies. 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.

We've seen that Allurion Technologies currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

Having said that, be aware Allurion Technologies is showing 6 warning signs in our investment analysis, and 2 of those shouldn't be ignored.

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.