TransMedics Group, Inc. (NASDAQ:TMDX) Stocks Shoot Up 27% But Its P/S Still Looks Reasonable

TransMedics Group, Inc. (NASDAQ:TMDX) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Looking further back, the 13% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

After such a large jump in price, TransMedics Group may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 12.3x, when you consider almost half of the companies in the Medical Equipment industry in the United States have P/S ratios under 3.2x and even P/S lower than 1.2x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for TransMedics Group

What Does TransMedics Group's Recent Performance Look Like?

Recent times have been advantageous for TransMedics Group as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, TransMedics Group would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 159% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 38% each year over the next three years. With the industry only predicted to deliver 10% per annum, the company is positioned for a stronger revenue result.

With this information, we can see why TransMedics Group is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

The strong share price surge has lead to TransMedics Group's P/S soaring as well. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that TransMedics Group maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Medical Equipment industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 1 warning sign for TransMedics Group that you need to take into consideration.

If these risks are making you reconsider your opinion on TransMedics Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.