Even With A 28% Surge, Cautious Investors Are Not Rewarding LENSAR, Inc.'s (NASDAQ:LNSR) Performance Completely

Despite an already strong run, LENSAR, Inc. (NASDAQ:LNSR) shares have been powering on, with a gain of 28% in the last thirty days. The last month tops off a massive increase of 219% in the last year.

In spite of the firm bounce in price, LENSAR may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 2.5x, considering almost half of all companies in the Medical Equipment industry in the United States have P/S ratios greater than 3.6x 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.

See our latest analysis for LENSAR

How LENSAR Has Been Performing

LENSAR certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. 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 LENSAR.

How Is LENSAR's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 21% gain to the company's top line. The latest three year period has also seen an excellent 55% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 26% during the coming year according to the two analysts following the company. That's shaping up to be materially higher than the 8.7% growth forecast for the broader industry.

In light of this, it's peculiar that LENSAR's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

LENSAR's stock price has surged recently, but its but its P/S still remains modest. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

A look at LENSAR's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. 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.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for LENSAR with six simple checks.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.