Getting In Cheap On iRhythm Technologies, Inc. (NASDAQ:IRTC) Might Be Difficult

When close to half the companies in the Medical Equipment industry in the United States have price-to-sales ratios (or "P/S") below 3.1x, you may consider iRhythm Technologies, Inc. (NASDAQ:IRTC) as a stock to avoid entirely with its 5.8x 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.

See our latest analysis for iRhythm Technologies

How iRhythm Technologies Has Been Performing

With revenue growth that's superior to most other companies of late, iRhythm Technologies has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For iRhythm Technologies?

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.

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. The latest three year period has also seen an excellent 86% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 18% each year as estimated by the twelve analysts watching the company. With the industry only predicted to deliver 10% per year, the company is positioned for a stronger revenue result.

In light of this, it's understandable that iRhythm Technologies' 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 Does iRhythm Technologies' P/S Mean For Investors?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

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. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 3 warning signs for iRhythm Technologies that we have uncovered.

If these risks are making you reconsider your opinion on iRhythm Technologies, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com