Treace Medical Concepts, Inc. (NASDAQ:TMCI) Screens Well But There Might Be A Catch

Treace Medical Concepts, Inc.'s (NASDAQ:TMCI) price-to-sales (or "P/S") ratio of 2.1x might make it look like a buy right now compared to the Medical Equipment industry in the United States, where around half of the companies have P/S ratios above 3.1x and even P/S above 7x 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 limited.

See our latest analysis for Treace Medical Concepts

How Treace Medical Concepts Has Been Performing

Treace Medical Concepts certainly has been doing a good job lately as it's been growing revenue more 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 the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Treace Medical Concepts' 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 26%. The strong recent performance means it was also able to grow revenue by 202% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 11% per year as estimated by the seven analysts watching the company. That's shaping up to be similar to the 9.8% per year growth forecast for the broader industry.

In light of this, it's peculiar that Treace Medical Concepts' P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Key Takeaway

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.

It looks to us like the P/S figures for Treace Medical Concepts remain low despite growth that is expected to be in line with other companies in the industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Treace Medical Concepts (1 shouldn't be ignored!) that you should be aware of before investing here.

If you're unsure about the strength of Treace Medical Concepts' 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.

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