Getting In Cheap On Insulet Corporation (NASDAQ:PODD) Might Be Difficult

Insulet Corporation's (NASDAQ:PODD) price-to-sales (or "P/S") ratio of 15.3x might make it look like a strong sell right now compared to the Medical Equipment industry in the United States, where around half of the companies have P/S ratios below 3.8x and even P/S below 1.4x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Insulet

How Insulet Has Been Performing

With revenue growth that's superior to most other companies of late, Insulet has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

How Is Insulet's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Insulet's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 20%. The strong recent performance means it was also able to grow revenue by 76% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 19% per year during the coming three years according to the analysts following the company. With the industry only predicted to deliver 9.8% each year, the company is positioned for a stronger revenue result.

With this information, we can see why Insulet is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

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.

As we suspected, our examination of Insulet's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Insulet (1 is a bit unpleasant) you should be aware of.

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.