The Price Is Right For Nephros, Inc. (NASDAQ:NEPH)

When close to half the companies in the Consumer Durables industry in the United States have price-to-sales ratios (or "P/S") below 0.6x, you may consider Nephros, Inc. (NASDAQ:NEPH) as a stock to potentially avoid with its 1.6x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Nephros

How Nephros Has Been Performing

Nephros certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

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

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

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to remain buoyant, climbing by 24% during the coming year according to the dual analysts following the company. With the rest of the industry predicted to shrink by 7.0%, that would be a fantastic result.

In light of this, it's understandable that Nephros' P/S sits above the majority of other companies. At this time, shareholders aren't keen to offload something that is potentially eyeing a much more prosperous future.

The Final Word

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we anticipated, our review of Nephros' analyst forecasts shows that the company's better revenue forecast compared to a turbulent industry is a significant contributor to its high price-to-sales ratio. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Our only concern is whether its revenue trajectory can keep outperforming under these tough industry conditions. Otherwise, it's hard to see the share price falling strongly in the near future under the current growth expectations.

Plus, you should also learn about these 3 warning signs we've spotted with Nephros.

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.

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