Lumos Diagnostics Holdings Limited (ASX:LDX) shareholders would be excited to see that the share price has had a great month, posting a 31% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 39% in the last twelve months.

Even after such a large jump in price, Lumos Diagnostics Holdings may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 2x, considering almost half of all companies in the Medical Equipment industry in Australia have P/S ratios greater than 3.5x and even P/S higher than 15x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Lumos Diagnostics Holdings

How Has Lumos Diagnostics Holdings Performed Recently?

Lumos Diagnostics Holdings has been doing a decent job lately as it's been growing revenue at a reasonable pace. One possibility is that the P/S ratio is low because investors think this good revenue growth might actually underperform the broader industry in the near future. 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Lumos Diagnostics Holdings' earnings, revenue and cash flow.

How Is Lumos Diagnostics Holdings' Revenue Growth Trending?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 5.7% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 41% overall drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 14% shows it's an unpleasant look.

In light of this, it's understandable that Lumos Diagnostics Holdings' P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Final Word

The latest share price surge wasn't enough to lift Lumos Diagnostics Holdings' P/S close to the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It's no surprise that Lumos Diagnostics Holdings maintains its low P/S off the back of its sliding revenue over the medium-term. 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 4 warning signs for Lumos Diagnostics Holdings (2 are concerning!) that you need to take into consideration.

If you're unsure about the strength of Lumos Diagnostics Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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