Geratherm Medical AG's (ETR:GME) Shares Leap 32% Yet They're Still Not Telling The Full Story

Geratherm Medical AG (ETR:GME) shareholders have had their patience rewarded with a 32% share price jump in the last month. Unfortunately, despite the strong performance over the last month, the full year gain of 3.0% isn't as attractive.

Although its price has surged higher, there still wouldn't be many who think Geratherm Medical's price-to-sales (or "P/S") ratio of 1.5x is worth a mention when the median P/S in Germany's Medical Equipment industry is similar at about 1.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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View our latest analysis for Geratherm Medical

How Geratherm Medical Has Been Performing

While the industry has experienced revenue growth lately, Geratherm Medical's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. 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 Geratherm Medical's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

Geratherm Medical's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 23%. This means it has also seen a slide in revenue over the longer-term as revenue is down 42% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 12% over the next year. With the industry only predicted to deliver 4.2%, the company is positioned for a stronger revenue result.

With this information, we find it interesting that Geratherm Medical is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What Does Geratherm Medical's P/S Mean For Investors?

Geratherm Medical's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Despite enticing revenue growth figures that outpace the industry, Geratherm Medical's P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Plus, you should also learn about these 5 warning signs we've spotted with Geratherm Medical (including 1 which doesn't sit too well with us).

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.