Why We're Not Concerned Yet About Delcath Systems, Inc.'s (NASDAQ:DCTH) 28% Share Price Plunge

The Delcath Systems, Inc. (NASDAQ:DCTH) share price has fared very poorly over the last month, falling by a substantial 28%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 17% share price drop.

In spite of the heavy fall in price, given close to half the companies operating in the United States' Medical Equipment industry have price-to-sales ratios (or "P/S") below 2.8x, you may still consider Delcath Systems as a stock to potentially avoid with its 3.6x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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See our latest analysis for Delcath Systems

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

Recent times have been advantageous for Delcath Systems as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Delcath Systems' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Delcath Systems' Revenue Growth Trending?

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

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 31% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 9.3% per annum, 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.

The Bottom Line On Delcath Systems' P/S

Despite the recent share price weakness, Delcath Systems' P/S remains higher than most other companies in the industry. 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.

Our look into Delcath Systems shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Delcath Systems with six simple checks will allow you to discover any risks that could be an issue.

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.