Delcath Systems, Inc.'s (NASDAQ:DCTH) P/S Is Still On The Mark Following 26% Share Price Bounce

Despite an already strong run, Delcath Systems, Inc. (NASDAQ:DCTH) shares have been powering on, with a gain of 26% in the last thirty days. The annual gain comes to 249% following the latest surge, making investors sit up and take notice.

After such a large jump in price, when almost half of the companies in the United States' Medical Equipment industry have price-to-sales ratios (or "P/S") below 3.2x, you may consider Delcath Systems as a stock not worth researching with its 25.7x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Delcath Systems

What Does Delcath Systems' Recent Performance Look Like?

Delcath Systems certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Delcath Systems' Revenue Growth Trending?

In order to justify its P/S ratio, Delcath Systems would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an explosive gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 131% per annum over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 9.3% each year, which is noticeably less attractive.

In light of this, it's understandable that Delcath Systems' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

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

Shares in Delcath Systems have seen a strong upwards swing lately, which has really helped boost its P/S figure. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Delcath Systems 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. 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.

You should always think about risks. Case in point, we've spotted 2 warning signs for Delcath Systems you should be aware of, and 1 of them shouldn't be ignored.

If you're unsure about the strength of Delcath Systems' 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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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.