There's No Escaping STRATA Skin Sciences, Inc.'s (NASDAQ:SSKN) Muted Revenues Despite A 45% Share Price Rise

STRATA Skin Sciences, Inc. (NASDAQ:SSKN) shares have had a really impressive month, gaining 45% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 12% over that time.

Even after such a large jump in price, STRATA Skin Sciences may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.4x, since almost half of all companies in the Medical Equipment industry in the United States have P/S ratios greater than 2.9x 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.

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See our latest analysis for STRATA Skin Sciences

How Has STRATA Skin Sciences Performed Recently?

STRATA Skin Sciences could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. 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.

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

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

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

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Likewise, not much has changed from three years ago as revenue have been stuck during that whole time. So it seems apparent to us that the company has struggled to grow revenue meaningfully over that time.

Turning to the outlook, the next year should generate growth of 0.8% as estimated by the two analysts watching the company. That's shaping up to be materially lower than the 9.7% growth forecast for the broader industry.

In light of this, it's understandable that STRATA Skin Sciences' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Even after such a strong price move, STRATA Skin Sciences' P/S still trails the rest of the industry. 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.

As expected, our analysis of STRATA Skin Sciences' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 3 warning signs for STRATA Skin Sciences you should be aware of, and 1 of them is significant.

If you're unsure about the strength of STRATA Skin Sciences' 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.