Rockwell Medical, Inc. (NASDAQ:RMTI) Doing What It Can To Lift Shares

Rockwell Medical, Inc.'s (NASDAQ:RMTI) price-to-sales (or "P/S") ratio of 0.7x might make it look like a strong buy right now compared to the Medical Equipment industry in the United States, where around half of the companies have P/S ratios above 3.3x and even P/S above 8x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

View our latest analysis for Rockwell Medical

What Does Rockwell Medical's P/S Mean For Shareholders?

Recent times have been advantageous for Rockwell Medical 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

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

Rockwell Medical'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.

If we review the last year of revenue growth, the company posted a terrific increase of 17%. The latest three year period has also seen a 29% overall rise in revenue, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 17% as estimated by the two analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 8.8%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Rockwell Medical's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

To us, it seems Rockwell Medical currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You need to take note of risks, for example - Rockwell Medical has 4 warning signs (and 2 which are a bit concerning) we think you should know about.

If you're unsure about the strength of Rockwell Medical'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.