Investor Optimism Abounds Mesa Laboratories, Inc. (NASDAQ:MLAB) But Growth Is Lacking

With a median price-to-sales (or "P/S") ratio of close to 3.6x in the Medical Equipment industry in the United States, you could be forgiven for feeling indifferent about Mesa Laboratories, Inc.'s (NASDAQ:MLAB) P/S ratio of 3.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Mesa Laboratories

How Has Mesa Laboratories Performed Recently?

Recent times have been advantageous for Mesa Laboratories as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Mesa Laboratories will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Mesa Laboratories?

The only time you'd be comfortable seeing a P/S like Mesa Laboratories' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. Pleasingly, revenue has also lifted 86% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 5.2% over the next year. Meanwhile, the rest of the industry is forecast to expand by 8.3%, which is noticeably more attractive.

In light of this, it's curious that Mesa Laboratories' P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Mesa Laboratories' P/S

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.

Given that Mesa Laboratories' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Plus, you should also learn about these 2 warning signs we've spotted with Mesa Laboratories (including 1 which is a bit concerning).

If these risks are making you reconsider your opinion on Mesa Laboratories, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.