Why Investors Shouldn't Be Surprised By OrthoPediatrics Corp.'s (NASDAQ:KIDS) P/S

OrthoPediatrics Corp.'s (NASDAQ:KIDS) price-to-sales (or "P/S") ratio of 5.5x may look like a poor investment opportunity when you consider close to half the companies in the Medical Equipment industry in the United States have P/S ratios below 3.3x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for OrthoPediatrics

How Has OrthoPediatrics Performed Recently?

With revenue growth that's superior to most other companies of late, OrthoPediatrics 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 OrthoPediatrics' 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 OrthoPediatrics?

OrthoPediatrics' 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 the company grew revenue by an impressive 22% last year. The latest three year period has also seen an excellent 100% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 20% over the next year. That's shaping up to be materially higher than the 8.7% growth forecast for the broader industry.

With this in mind, it's not hard to understand why OrthoPediatrics' P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does OrthoPediatrics' P/S Mean For Investors?

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.

We've established that OrthoPediatrics maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Medical Equipment industry, as expected. 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.

It is also worth noting that we have found 2 warning signs for OrthoPediatrics that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.