AVITA Medical, Inc.'s (NASDAQ:RCEL) Shares Bounce 26% But Its Business Still Trails The Industry

AVITA Medical, Inc. (NASDAQ:RCEL) shares have continued their recent momentum with a 26% gain in the last month alone. Looking further back, the 12% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, AVITA Medical may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 5.7x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 10.6x and even P/S higher than 65x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for AVITA Medical

What Does AVITA Medical's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, AVITA Medical has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Keen to find out how analysts think AVITA Medical's future stacks up against the industry? In that case, our free report is a great place to start.

How Is AVITA Medical's Revenue Growth Trending?

AVITA Medical's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 32%. Pleasingly, revenue has also lifted 92% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 35% per year as estimated by the ten analysts watching the company. With the industry predicted to deliver 122% growth each year, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why AVITA Medical'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

AVITA Medical's stock price has surged recently, but its but its P/S still remains modest. 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.

We've established that AVITA Medical maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. 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.

Having said that, be aware AVITA Medical is showing 2 warning signs in our investment analysis, you should know about.

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.