Delcath Systems, Inc.'s (NASDAQ:DCTH) 26% Jump Shows Its Popularity With Investors

Delcath Systems, Inc. (NASDAQ:DCTH) shares have continued their recent momentum with a 26% gain in the last month alone. The last month tops off a massive increase of 103% in the last year.

Since its price has surged higher, Delcath Systems may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 23.1x, when you consider almost half of the companies in the Medical Equipment industry in the United States have P/S ratios under 3.2x and even P/S lower than 1.2x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Delcath Systems

What Does Delcath Systems' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Delcath Systems has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Delcath Systems.

Do Revenue Forecasts Match The High P/S Ratio?

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

Retrospectively, the last year delivered an explosive gain to the company's top line. Spectacularly, three year revenue growth has also set the world alight, thanks to the last 12 months of incredible growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 131% per year as estimated by the six analysts watching the company. That's shaping up to be materially higher than the 9.1% each year growth forecast for the broader industry.

In light of this, it's understandable that Delcath Systems' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Delcath Systems' P/S?

Delcath Systems' P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 suspected, our examination of Delcath Systems' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Delcath Systems (of which 1 is a bit concerning!) you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.