A Piece Of The Puzzle Missing From AtriCure, Inc.'s (NASDAQ:ATRC) 28% Share Price Climb

Despite an already strong run, AtriCure, Inc. (NASDAQ:ATRC) shares have been powering on, with a gain of 28% in the last thirty days. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 5.4% in the last twelve months.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about AtriCure's P/S ratio of 3.9x, since the median price-to-sales (or "P/S") ratio for the Medical Equipment industry in the United States is also close to 3.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for AtriCure

What Does AtriCure's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, AtriCure has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

How Is AtriCure's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 18% gain to the company's top line. Pleasingly, revenue has also lifted 73% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 15% each year as estimated by the nine analysts watching the company. With the industry only predicted to deliver 9.3% per year, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that AtriCure's P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

AtriCure's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Looking at AtriCure's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for AtriCure you should know about.

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.