With TransMedics Group, Inc. (NASDAQ:TMDX) It Looks Like You'll Get What You Pay For

With a price-to-sales (or "P/S") ratio of 15x TransMedics Group, Inc. (NASDAQ:TMDX) may be sending very bearish signals at the moment, given that almost half of all the Medical Equipment companies in the United States have P/S ratios under 3.4x and even P/S lower than 1.3x are not unusual. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for TransMedics Group

How Has TransMedics Group Performed Recently?

With revenue growth that's superior to most other companies of late, TransMedics Group has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 167% 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.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 51% per annum over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 9.8% each year, which is noticeably less attractive.

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.

The Key Takeaway

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

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.

Plus, you should also learn about these 3 warning signs we've spotted with TransMedics Group.

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.