TransMedics Group, Inc.'s (NASDAQ:TMDX) P/S Is Still On The Mark Following 25% Share Price Bounce

The TransMedics Group, Inc. (NASDAQ:TMDX) share price has done very well over the last month, posting an excellent gain of 25%. The last month tops off a massive increase of 174% in the last year.

After such a large jump in price, when almost half of the companies in the United States' Medical Equipment industry have price-to-sales ratios (or "P/S") below 3.2x, you may consider TransMedics Group as a stock not worth researching with its 16.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for TransMedics Group

What Does TransMedics Group's P/S Mean For Shareholders?

Recent times have been advantageous for TransMedics Group as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

How Is TransMedics Group's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like TransMedics Group's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 137% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 29% per year as estimated by the nine analysts watching the company. That's shaping up to be materially higher than the 10% per annum growth forecast for the broader industry.

In light of this, it's understandable that TransMedics Group's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does TransMedics Group's P/S Mean For Investors?

Shares in TransMedics Group have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

Our look into TransMedics Group shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware TransMedics Group is showing 4 warning signs in our investment analysis, and 2 of those can't be ignored.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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

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.