Why Investors Shouldn't Be Surprised By Bausch + Lomb Corporation's (NYSE:BLCO) Low P/S

You may think that with a price-to-sales (or "P/S") ratio of 1.5x Bausch + Lomb Corporation (NYSE:BLCO) is a stock worth checking out, seeing as almost half of all the Medical Equipment companies in the United States have P/S ratios greater than 3x and even P/S higher than 6x 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 reduced P/S.

View our latest analysis for Bausch + Lomb

How Bausch + Lomb Has Been Performing

Recent times haven't been great for Bausch + Lomb as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

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

There's an inherent assumption that a company should underperform the industry for P/S ratios like Bausch + Lomb's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 5.2%. The solid recent performance means it was also able to grow revenue by 16% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 8.3% per annum as estimated by the eleven analysts watching the company. With the industry predicted to deliver 11% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Bausch + Lomb's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Bausch + Lomb's P/S?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As expected, our analysis of Bausch + Lomb's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Bausch + Lomb is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Bausch + Lomb, 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.