After Leaping 25% iRhythm Technologies, Inc. (NASDAQ:IRTC) Shares Are Not Flying Under The Radar

iRhythm Technologies, Inc. (NASDAQ:IRTC) shares have had a really impressive month, gaining 25% after a shaky period beforehand. The last month tops off a massive increase of 147% in the last year.

Following the firm bounce in price, given around half the companies in the United States' Medical Equipment industry have price-to-sales ratios (or "P/S") below 2.9x, you may consider iRhythm Technologies as a stock to avoid entirely with its 8.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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See our latest analysis for iRhythm Technologies

What Does iRhythm Technologies' P/S Mean For Shareholders?

iRhythm Technologies certainly has been doing a good job lately as it's been growing revenue more than most other companies. 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.

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

How Is iRhythm Technologies' Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 22%. The latest three year period has also seen an excellent 82% overall rise in revenue, aided by its short-term performance. 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 17% each year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 9.2% each year growth forecast for the broader industry.

With this in mind, it's not hard to understand why iRhythm Technologies' P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Shares in iRhythm Technologies have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

We've established that iRhythm Technologies 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. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you take the next step, you should know about the 1 warning sign for iRhythm Technologies that we have uncovered.

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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.