Take Care Before Jumping Onto Spectral AI, Inc. (NASDAQ:MDAI) Even Though It's 28% Cheaper

Spectral AI, Inc. (NASDAQ:MDAI) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 30% share price drop.

Since its price has dipped substantially, Spectral AI may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1x, since almost half of all companies in the Medical Equipment industry in the United States have P/S ratios greater than 3.3x and even P/S higher than 7x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Spectral AI

What Does Spectral AI's P/S Mean For Shareholders?

Recent times have been advantageous for Spectral AI as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. 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 Spectral AI.

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

Spectral AI's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Retrospectively, the last year delivered an exceptional 45% gain to the company's top line. The latest three year period has also seen an excellent 68% 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 35% per year during the coming three years according to the five analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 9.3% each year, which is noticeably less attractive.

With this information, we find it odd that Spectral AI is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Spectral AI's P/S?

Having almost fallen off a cliff, Spectral AI's share price has pulled its P/S way down as well. 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.

A look at Spectral AI's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 4 warning signs for Spectral AI you should be aware of, and 1 of them is concerning.

If you're unsure about the strength of Spectral AI'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.