Yahoo Finance Market Participants Recognise Desktop Metal, Inc.'s (NYSE:DM) Revenues
Desktop Metal, Inc.'s (NYSE:DM) price-to-sales (or "P/S") ratio of 3.4x may not look like an appealing investment opportunity when you consider close to half the companies in the Machinery industry in the United States have P/S ratios below 1.5x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.
View our latest analysis for Desktop Metal
What Does Desktop Metal's Recent Performance Look Like?
Recent times have been advantageous for Desktop Metal 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Desktop Metal.
Is There Enough Revenue Growth Forecasted For Desktop Metal?
There's an inherent assumption that a company should outperform the industry for P/S ratios like Desktop Metal's to be considered reasonable.
Taking a look back first, we see that the company grew revenue by an impressive 86% last year. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Looking ahead now, revenue is anticipated to climb by 16% per year during the coming three years according to the six analysts following the company. That's shaping up to be materially higher than the 8.8% each year growth forecast for the broader industry.
With this information, we can see why Desktop Metal is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
What We Can Learn From Desktop Metal's P/S?
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.
We've established that Desktop Metal maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Machinery industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.
Before you take the next step, you should know about the 5 warning signs for Desktop Metal (1 can't be ignored!) that we have uncovered.
If these risks are making you reconsider your opinion on Desktop Metal, 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.
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