Lacklustre Performance Is Driving OraSure Technologies, Inc.'s (NASDAQ:OSUR) Low P/S

With a price-to-sales (or "P/S") ratio of 1x OraSure Technologies, Inc. (NASDAQ:OSUR) may be sending very bullish signals at the moment, given that almost half of all the Medical Equipment companies in the United States have P/S ratios greater than 3.2x and even P/S higher than 8x 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 OraSure Technologies

What Does OraSure Technologies' Recent Performance Look Like?

Recent times haven't been great for OraSure Technologies as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

How Is OraSure Technologies' Revenue Growth Trending?

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

Retrospectively, the last year delivered a decent 4.6% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 136% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the six analysts covering the company suggest revenue growth is heading into negative territory, declining 23% per year over the next three years. That's not great when the rest of the industry is expected to grow by 10% per year.

In light of this, it's understandable that OraSure Technologies' P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that OraSure Technologies' P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, OraSure Technologies' poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

There are also other vital risk factors to consider and we've discovered 2 warning signs for OraSure Technologies (1 is potentially serious!) that you should be aware of before investing here.

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.