Bruker Corporation's (NASDAQ:BRKR) price-to-sales (or "P/S") ratio of 1.7x might make it look like a buy right now compared to the Life Sciences industry in the United States, where around half of the companies have P/S ratios above 2.7x and even P/S above 6x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
View our latest analysis for Bruker
How Has Bruker Performed Recently?
With revenue growth that's superior to most other companies of late, Bruker has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Bruker will help you uncover what's on the horizon.How Is Bruker's Revenue Growth Trending?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Bruker's to be considered reasonable.
Retrospectively, the last year delivered a decent 15% gain to the company's revenues. Pleasingly, revenue has also lifted 40% in aggregate from three years ago, partly 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 4.7% per year as estimated by the twelve analysts watching the company. With the industry predicted to deliver 7.2% growth per year, the company is positioned for a weaker revenue result.
In light of this, it's understandable that Bruker'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.
The Final Word
Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
As expected, our analysis of Bruker's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
You should always think about risks. Case in point, we've spotted 3 warning signs for Bruker you should be aware of, and 1 of them is a bit unpleasant.
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.