Why We're Not Concerned About Glaukos Corporation's (NYSE:GKOS) Share Price

When close to half the companies in the Medical Equipment industry in the United States have price-to-sales ratios (or "P/S") below 2.8x, you may consider Glaukos Corporation (NYSE:GKOS) as a stock to avoid entirely with its 13.8x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

View our latest analysis for Glaukos

What Does Glaukos' P/S Mean For Shareholders?

Recent times have been advantageous for Glaukos as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

How Is Glaukos' Revenue Growth Trending?

Glaukos' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered an exceptional 24% gain to the company's top line. Pleasingly, revenue has also lifted 38% in aggregate from three years ago, thanks to the last 12 months of growth. 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 analysts covering the company suggest revenue should grow by 27% per annum over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 10% per year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Glaukos' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look into Glaukos shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Glaukos with six simple checks.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.