Trinity Biotech plc (NASDAQ:TRIB) Held Back By Insufficient Growth Even After Shares Climb 54%

Trinity Biotech plc (NASDAQ:TRIB) shareholders would be excited to see that the share price has had a great month, posting a 54% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 55% in the last year.

Even after such a large jump in price, Trinity Biotech's price-to-sales (or "P/S") ratio of 0.5x might still make it look like a strong buy right now compared to the wider Medical Equipment industry in the United States, where around half of the companies have P/S ratios above 3x and even P/S above 9x 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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Check out our latest analysis for Trinity Biotech

What Does Trinity Biotech's Recent Performance Look Like?

For instance, Trinity Biotech's receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Trinity Biotech will help you shine a light on its historical performance.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 16%. This means it has also seen a slide in revenue over the longer-term as revenue is down 37% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 48% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we understand why Trinity Biotech's P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Trinity Biotech's P/S

Even after such a strong price move, Trinity Biotech's P/S still trails the rest of the industry. 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.

As we suspected, our examination of Trinity Biotech revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

It is also worth noting that we have found 5 warning signs for Trinity Biotech (3 don't sit too well with us!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Trinity Biotech, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.