Why We're Not Concerned About Alphatec Holdings, Inc.'s (NASDAQ:ATEC) Share Price

You may think that with a price-to-sales (or "P/S") ratio of 5x Alphatec Holdings, Inc. (NASDAQ:ATEC) is a stock to potentially avoid, seeing as almost half of all the Medical Equipment companies in the United States have P/S ratios under 3.8x and even P/S lower than 1.5x aren't out of the ordinary. 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.

View 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 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.

Keen to find out how analysts think Alphatec Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Alphatec Holdings?

In order to justify its P/S ratio, Alphatec Holdings would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 44% last year. The strong recent performance means it was also able to grow revenue by 209% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the ten analysts covering the company suggest revenue should grow by 22% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 9.0% per annum, which is noticeably less attractive.

With this in mind, it's not hard to understand why Alphatec Holdings' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look into Alphatec Holdings shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

There are also other vital risk factors to consider and we've discovered 5 warning signs for Alphatec Holdings (1 is concerning!) that you should be aware of before investing here.

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.