After Leaping 29% Establishment Labs Holdings Inc. (NASDAQ:ESTA) Shares Are Not Flying Under The Radar

Establishment Labs Holdings Inc. (NASDAQ:ESTA) shareholders are no doubt pleased to see that the share price has bounced 29% in the last month, although it is still struggling to make up recently lost ground. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 6.9% in the last twelve months.

Since its price has surged higher, Establishment Labs Holdings may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 7.2x, since almost half of all companies in the Medical Equipment industry in the United States have P/S ratios under 3.5x and even P/S lower than 1.2x are not unusual. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Establishment Labs Holdings

How Has Establishment Labs Holdings Performed Recently?

Establishment Labs Holdings could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Establishment Labs Holdings' Revenue Growth Trending?

Establishment Labs Holdings' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Although pleasingly revenue has lifted 31% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, shareholders will be pleased, but also have some questions to ponder about the last 12 months.

Turning to the outlook, the next three years should generate growth of 24% per year as estimated by the seven analysts watching the company. With the industry only predicted to deliver 9.4% each year, the company is positioned for a stronger revenue result.

With this information, we can see why Establishment Labs Holdings is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Shares in Establishment Labs Holdings have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 we suspected, our examination of Establishment Labs Holdings' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 1 warning sign for Establishment Labs Holdings that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.