Investors Holding Back On Tactile Systems Technology, Inc. (NASDAQ:TCMD)

With a price-to-sales (or "P/S") ratio of 1.1x Tactile Systems Technology, Inc. (NASDAQ:TCMD) may be sending very bullish signals at the moment, given that almost half of all the Medical Equipment companies in the United States have P/S ratios greater than 3.3x and even P/S higher than 7x 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 so limited.

See our latest analysis for Tactile Systems Technology

What Does Tactile Systems Technology's P/S Mean For Shareholders?

Tactile Systems Technology could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited 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 Tactile Systems Technology.

Is There Any Revenue Growth Forecasted For Tactile Systems Technology?

The only time you'd be truly comfortable seeing a P/S as depressed as Tactile Systems Technology's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a decent 7.4% gain to the company's revenues. Pleasingly, revenue has also lifted 49% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 13% during the coming year according to the four analysts following the company. With the industry only predicted to deliver 9.4%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Tactile Systems Technology'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 Key Takeaway

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.

A look at Tactile Systems Technology's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. 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.

Having said that, be aware Tactile Systems Technology is showing 3 warning signs in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com