Guardant Health, Inc.'s (NASDAQ:GH) P/S Is Still On The Mark Following 43% Share Price Bounce

Despite an already strong run, Guardant Health, Inc. (NASDAQ:GH) shares have been powering on, with a gain of 43% in the last thirty days. The last 30 days bring the annual gain to a very sharp 97%.

Since its price has surged higher, given around half the companies in the United States' Healthcare industry have price-to-sales ratios (or "P/S") below 1.2x, you may consider Guardant Health as a stock to avoid entirely with its 8.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Guardant Health

What Does Guardant Health's P/S Mean For Shareholders?

Guardant Health certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as steep as Guardant Health's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 29% gain to the company's top line. Pleasingly, revenue has also lifted 101% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 20% per annum during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 8.3% per year, which is noticeably less attractive.

With this information, we can see why Guardant Health is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Shares in Guardant Health 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.

Our look into Guardant Health shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Guardant Health is showing 3 warning signs in our investment analysis, and 1 of those is significant.

If you're unsure about the strength of Guardant Health's 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.