Take Care Before Jumping Onto iRhythm Technologies, Inc. (NASDAQ:IRTC) Even Though It's 26% Cheaper

Unfortunately for some shareholders, the iRhythm Technologies, Inc. (NASDAQ:IRTC) share price has dived 26% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 32% share price drop.

In spite of the heavy fall in price, there still wouldn't be many who think iRhythm Technologies' price-to-sales (or "P/S") ratio of 3.3x is worth a mention when the median P/S in the United States' Medical Equipment industry is similar at about 3.1x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for iRhythm Technologies

How Has iRhythm Technologies Performed Recently?

Recent times have been advantageous for iRhythm Technologies as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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?

iRhythm Technologies' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 19%. The strong recent performance means it was also able to grow revenue by 75% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the twelve analysts covering the company suggest revenue should grow by 19% per annum over the next three years. With the industry only predicted to deliver 9.1% per year, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that iRhythm Technologies' P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

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

Following iRhythm Technologies' share price tumble, its P/S is just clinging on to the industry median P/S. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that iRhythm Technologies currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

You should always think about risks. Case in point, we've spotted 3 warning signs for iRhythm Technologies you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.