DENTSPLY SIRONA Inc.'s (NASDAQ:XRAY) Share Price Boosted 26% But Its Business Prospects Need A Lift Too

DENTSPLY SIRONA Inc. (NASDAQ:XRAY) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 44% in the last twelve months.

Although its price has surged higher, DENTSPLY SIRONA may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.8x, considering almost half of all companies in the Medical Equipment industry in the United States have P/S ratios greater than 3.1x and even P/S higher than 7x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for DENTSPLY SIRONA

What Does DENTSPLY SIRONA's P/S Mean For Shareholders?

DENTSPLY SIRONA could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

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

In order to justify its P/S ratio, DENTSPLY SIRONA would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a frustrating 4.3% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 10% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 0.2% per year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 9.7% per year growth forecast for the broader industry.

With this in consideration, its clear as to why DENTSPLY SIRONA's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Even after such a strong price move, DENTSPLY SIRONA's P/S still trails the rest of the industry. 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.

As we suspected, our examination of DENTSPLY SIRONA's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

You should always think about risks. Case in point, we've spotted 1 warning sign for DENTSPLY SIRONA you should be aware of.

If these risks are making you reconsider your opinion on DENTSPLY SIRONA, 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.