Yahoo Finance Intelligent Ultrasound Group plc (LON:IUG) Could Be Riskier Than It Looks
With a price-to-sales (or "P/S") ratio of 2.5x Intelligent Ultrasound Group plc (LON:IUG) may be sending bullish signals at the moment, given that almost half of all the Healthcare Services companies in the United Kingdom have P/S ratios greater than 3.2x and even P/S higher than 7x are not unusual. 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 Intelligent Ultrasound Group
How Intelligent Ultrasound Group Has Been Performing
Revenue has risen at a steady rate over the last year for Intelligent Ultrasound Group, which is generally not a bad outcome. One possibility is that the P/S ratio is low because investors think this good revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Intelligent Ultrasound Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Intelligent Ultrasound Group will help you shine a light on its historical performance.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
In order to justify its P/S ratio, Intelligent Ultrasound Group would need to produce sluggish growth that's trailing the industry.
Taking a look back first, we see that the company managed to grow revenues by a handy 4.1% last year. This was backed up an excellent period prior to see revenue up by 94% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.
When compared to the industry's one-year growth forecast of 6.6%, the most recent medium-term revenue trajectory is noticeably more alluring
In light of this, it's peculiar that Intelligent Ultrasound Group's P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.
The Key Takeaway
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.
Our examination of Intelligent Ultrasound Group revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.
There are also other vital risk factors to consider and we've discovered 2 warning signs for Intelligent Ultrasound Group (1 is a bit concerning!) that you should be aware of before investing here.
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.
