There Is A Reason EDAP TMS S.A.'s (NASDAQ:EDAP) Price Is Undemanding

EDAP TMS S.A.'s (NASDAQ:EDAP) price-to-sales (or "P/S") ratio of 0.8x might make it look like a strong buy right now compared to the Medical Equipment industry in the United States, where around half of the companies have P/S ratios above 2.9x and even P/S above 8x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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See our latest analysis for EDAP TMS

What Does EDAP TMS' Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, EDAP TMS has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could 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 EDAP TMS.

Is There Any Revenue Growth Forecasted For EDAP TMS?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 3.7% last year. Pleasingly, revenue has also lifted 34% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 6.0% each year over the next three years. That's shaping up to be materially lower than the 9.2% per annum growth forecast for the broader industry.

With this information, we can see why EDAP TMS is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does EDAP TMS' P/S Mean For Investors?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As expected, our analysis of EDAP TMS' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you settle on your opinion, we've discovered 2 warning signs for EDAP TMS that you should be aware of.

If you're unsure about the strength of EDAP TMS' 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.