There's No Escaping Rockwell Medical, Inc.'s (NASDAQ:RMTI) Muted Revenues Despite A 43% Share Price Rise

Despite an already strong run, Rockwell Medical, Inc. (NASDAQ:RMTI) shares have been powering on, with a gain of 43% in the last thirty days. But the last month did very little to improve the 51% share price decline over the last year.

Although its price has surged higher, Rockwell Medical's price-to-sales (or "P/S") ratio of 0.6x might still make it look like a strong buy right now compared to the wider Medical Equipment industry in the United States, where around half of the companies have P/S ratios above 3x and even P/S above 8x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

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View our latest analysis for Rockwell Medical

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

Rockwell Medical hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Rockwell Medical.

Is There Any Revenue Growth Forecasted For Rockwell Medical?

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

Retrospectively, the last year delivered a frustrating 6.8% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 33% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 18% as estimated by the dual analysts watching the company. With the industry predicted to deliver 9.7% growth, that's a disappointing outcome.

With this in consideration, we find it intriguing that Rockwell Medical's P/S is closely matching its industry peers. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From Rockwell Medical's P/S?

Even after such a strong price move, Rockwell Medical's P/S still trails the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It's clear to see that Rockwell Medical maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 4 warning signs for Rockwell Medical (1 shouldn't be ignored!) that you need to take into consideration.

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.