A Piece Of The Puzzle Missing From Hamilton Thorne Ltd.'s (TSE:HTL) 47% Share Price Climb

Hamilton Thorne Ltd. (TSE:HTL) shareholders have had their patience rewarded with a 47% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 53%.

Even after such a large jump in price, Hamilton Thorne's price-to-sales (or "P/S") ratio of 3.4x might still make it look like a strong buy right now compared to the wider Medical Equipment industry in Canada, where around half of the companies have P/S ratios above 37.6x and even P/S above 64x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for Hamilton Thorne

What Does Hamilton Thorne's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Hamilton Thorne has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Want the full picture on analyst estimates for the company? Then our free report on Hamilton Thorne will help you uncover what's on the horizon.

How Is Hamilton Thorne's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a worthy increase of 15%. This was backed up an excellent period prior to see revenue up by 71% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 11% each year as estimated by the six analysts watching the company. With the industry predicted to deliver 10% growth per year, the company is positioned for a comparable revenue result.

In light of this, it's peculiar that Hamilton Thorne's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

What Does Hamilton Thorne's P/S Mean For Investors?

Hamilton Thorne's recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

We've seen that Hamilton Thorne currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Hamilton Thorne you should know about.

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).

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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.

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