Market Cool On ViewRay, Inc.'s (NASDAQ:VRAY) Revenues Pushing Shares 63% Lower

The ViewRay, Inc. (NASDAQ:VRAY) share price has fared very poorly over the last month, falling by a substantial 63%. For any long-term shareholders, the last month ends a year to forget by locking in a 61% share price decline.

Following the heavy fall in price, ViewRay's price-to-sales (or "P/S") ratio of 2.3x 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 3.5x and even P/S above 8x 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.

Check out our latest analysis for ViewRay

How ViewRay Has Been Performing

ViewRay certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic 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 ViewRay.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as low as ViewRay's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 46% gain to the company's top line. The latest three year period has also seen a 16% overall rise in revenue, aided extensively by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 24% per year during the coming three years according to the six analysts following the company. With the industry only predicted to deliver 8.9% per annum, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that ViewRay's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From ViewRay's P/S?

ViewRay's P/S has taken a dip along with its share price. 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.

A look at ViewRay's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

It is also worth noting that we have found 2 warning signs for ViewRay that you need to take into consideration.

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.