Not Many Are Piling Into LENSAR, Inc. (NASDAQ:LNSR) Just Yet

LENSAR, Inc.'s (NASDAQ:LNSR) price-to-sales (or "P/S") ratio of 0.7x might make it look like a strong buy right now compared to the Medical Equipment industry in the United States, where around half of the companies have P/S ratios above 3.3x and even P/S above 8x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for LENSAR

What Does LENSAR's Recent Performance Look Like?

Recent times have been advantageous for LENSAR as its revenues have been rising faster 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.

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

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

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

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. This was backed up an excellent period prior to see revenue up by 52% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 28% during the coming year according to the lone analyst 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 Bottom Line On LENSAR's P/S

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.

LENSAR's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with LENSAR, and understanding these should be part of your investment process.

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.