MDxHealth SA (NASDAQ:MDXH) Looks Inexpensive After Falling 28% But Perhaps Not Attractive Enough

MDxHealth SA (NASDAQ:MDXH) shareholders won't be pleased to see that the share price has had a very rough month, dropping 28% and undoing the prior period's positive performance. Looking at the bigger picture, even after this poor month the stock is up 82% in the last year.

After such a large drop in price, MDxHealth's price-to-sales (or "P/S") ratio of 1.7x might make it look like a strong buy right now compared to the wider Biotechs industry in the United States, where around half of the companies have P/S ratios above 12.1x and even P/S above 101x are quite common. 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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View our latest analysis for MDxHealth

How Has MDxHealth Performed Recently?

Recent times haven't been great for MDxHealth as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited 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 MDxHealth.

Do Revenue Forecasts Match The Low P/S Ratio?

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

If we review the last year of revenue growth, the company posted a terrific increase of 22%. The strong recent performance means it was also able to grow revenue by 242% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 21% per annum over the next three years. That's shaping up to be materially lower than the 128% each year growth forecast for the broader industry.

With this information, we can see why MDxHealth is trading at a P/S lower than the industry. 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 MDxHealth's P/S?

Shares in MDxHealth have plummeted and its P/S has followed suit. 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.

We've established that MDxHealth maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for MDxHealth that you should be aware of.

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.

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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.