Market Participants Recognise Gentian Diagnostics ASA's (OB:GENT) Revenues Pushing Shares 27% Higher

Gentian Diagnostics ASA (OB:GENT) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 48% in the last year.

Following the firm bounce in price, Gentian Diagnostics' price-to-sales (or "P/S") ratio of 5.6x might make it look like a strong sell right now compared to other companies in the Medical Equipment industry in Norway, where around half of the companies have P/S ratios below 3.4x and even P/S below 1.3x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Our free stock report includes 3 warning signs investors should be aware of before investing in Gentian Diagnostics. Read for free now.

See our latest analysis for Gentian Diagnostics

What Does Gentian Diagnostics' P/S Mean For Shareholders?

Recent revenue growth for Gentian Diagnostics has been in line with the industry. One possibility is that the P/S ratio is high because investors think this modest revenue performance will accelerate. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Gentian Diagnostics' Revenue Growth Trending?

Gentian Diagnostics' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 5.8%. The latest three year period has also seen an excellent 60% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 35% over the next year. That's shaping up to be materially higher than the 7.3% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Gentian Diagnostics' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Gentian Diagnostics' P/S?

Shares in Gentian Diagnostics have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 Gentian Diagnostics maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Medical Equipment industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. 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 3 warning signs for Gentian Diagnostics (2 don't sit too well with us!) that we have uncovered.

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.