ICU Medical, Inc.'s (NASDAQ:ICUI) Shares Lagging The Industry But So Is The Business

You may think that with a price-to-sales (or "P/S") ratio of 1.6x ICU Medical, Inc. (NASDAQ:ICUI) is a stock worth checking out, seeing as almost half of all the Medical Equipment companies in the United States have P/S ratios greater than 3.3x and even P/S higher than 8x 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 limited.

Check out our latest analysis for ICU Medical

How Has ICU Medical Performed Recently?

ICU Medical could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, ICU Medical would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 4.0% gain to the company's revenues. Pleasingly, revenue has also lifted 81% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue growth is heading into negative territory, declining 0.2% each year over the next three years. That's not great when the rest of the industry is expected to grow by 9.2% per year.

With this information, we are not surprised that ICU Medical is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Final Word

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that ICU Medical's P/S is on the lower end of the spectrum. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for ICU Medical you should be aware of.

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

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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.