Alphatec Holdings, Inc. (NASDAQ:ATEC) Soars 50% But It's A Story Of Risk Vs Reward

Alphatec Holdings, Inc. (NASDAQ:ATEC) shareholders would be excited to see that the share price has had a great month, posting a 50% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 24% over that time.

Although its price has surged higher, Alphatec Holdings may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.9x, considering almost half of all companies in the Medical Equipment industry in the United States have P/S ratios greater than 3.2x and even P/S higher than 8x 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 reduced P/S.

Check out our latest analysis for Alphatec Holdings

How Alphatec Holdings Has Been Performing

With revenue growth that's superior to most other companies of late, Alphatec Holdings has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Alphatec Holdings.

How Is Alphatec Holdings' Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 27% last year. The latest three year period has also seen an excellent 169% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 19% per annum during the coming three years according to the eleven analysts following the company. That's shaping up to be materially higher than the 9.3% each year growth forecast for the broader industry.

With this information, we find it odd that Alphatec Holdings is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Alphatec Holdings' P/S?

Alphatec Holdings' stock price has surged recently, but its but its P/S still remains modest. 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.

A look at Alphatec Holdings' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Before you take the next step, you should know about the 4 warning signs for Alphatec Holdings that we have uncovered.

If these risks are making you reconsider your opinion on Alphatec Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.