ReWalk Robotics Ltd. (NASDAQ:LFWD) Soars 26% But It's A Story Of Risk Vs Reward

ReWalk Robotics Ltd. (NASDAQ:LFWD) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 3.2% over the last year.

In spite of the firm bounce in price, ReWalk Robotics may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 2.2x, considering almost half of all companies in the Medical Equipment industry in the United States have P/S ratios greater than 3.2x and even P/S higher than 7x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for ReWalk Robotics

What Does ReWalk Robotics' P/S Mean For Shareholders?

ReWalk Robotics certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

How Is ReWalk Robotics' Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 205% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 262% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 75% each year as estimated by the dual analysts watching the company. With the industry only predicted to deliver 10.0% per annum, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that ReWalk Robotics' P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

The latest share price surge wasn't enough to lift ReWalk Robotics' P/S close to the industry median. 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.

ReWalk Robotics' analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

Before you settle on your opinion, we've discovered 2 warning signs for ReWalk Robotics (1 is potentially serious!) that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com