Not Many Are Piling Into Pulmonx Corporation (NASDAQ:LUNG) Stock Yet As It Plummets 27%

The Pulmonx Corporation (NASDAQ:LUNG) share price has fared very poorly over the last month, falling by a substantial 27%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 27% share price drop.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Pulmonx's P/S ratio of 3.2x, since the median price-to-sales (or "P/S") ratio for the Medical Equipment industry in the United States is about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Pulmonx

What Does Pulmonx's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Pulmonx has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. 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 Pulmonx.

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

In order to justify its P/S ratio, Pulmonx would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 26% last year. The latest three year period has also seen an excellent 83% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 20% each year during the coming three years according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 9.2% per annum, which is noticeably less attractive.

With this information, we find it interesting that Pulmonx is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Following Pulmonx's share price tumble, its P/S is just clinging on to the industry median P/S. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Pulmonx currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

You always need to take note of risks, for example - Pulmonx has 2 warning signs we think you should be aware of.

If you're unsure about the strength of Pulmonx's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.