A Piece Of The Puzzle Missing From Silk Road Medical, Inc's (NASDAQ:SILK) 26% Share Price Climb

Silk Road Medical, Inc (NASDAQ:SILK) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 81% share price decline over the last year.

In spite of the firm bounce in price, Silk Road Medical may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.4x, since almost half of all companies in the Medical Equipment industry in the United States have P/S ratios greater than 3.3x and even P/S higher than 8x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Silk Road Medical

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

Recent times have been advantageous for Silk Road Medical as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

How Is Silk Road Medical's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Silk Road Medical's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 34%. The latest three year period has also seen an excellent 134% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 12% per year during the coming three years according to the eight analysts following the company. That's shaping up to be materially higher than the 9.8% each year growth forecast for the broader industry.

In light of this, it's peculiar that Silk Road Medical's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

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

The latest share price surge wasn't enough to lift Silk Road Medical's P/S close to the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

To us, it seems Silk Road Medical currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

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

If you're unsure about the strength of Silk Road 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.