Market Participants Recognise SOPHiA GENETICS SA's (NASDAQ:SOPH) Revenues Pushing Shares 28% Higher

SOPHiA GENETICS SA (NASDAQ:SOPH) shares have continued their recent momentum with a 28% gain in the last month alone. Looking further back, the 21% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Since its price has surged higher, you could be forgiven for thinking SOPHiA GENETICS is a stock not worth researching with a price-to-sales ratios (or "P/S") of 4.3x, considering almost half the companies in the United States' Healthcare Services industry have P/S ratios below 3x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for SOPHiA GENETICS

How Has SOPHiA GENETICS Performed Recently?

Recent times haven't been great for SOPHiA GENETICS as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Do Revenue Forecasts Match The High P/S Ratio?

SOPHiA GENETICS' P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered a decent 7.3% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 59% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 22% each year as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 12% per year growth forecast for the broader industry.

With this information, we can see why SOPHiA GENETICS 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.

What We Can Learn From SOPHiA GENETICS' P/S?

SOPHiA GENETICS' P/S is on the rise since its shares have risen strongly. 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.

We've established that SOPHiA GENETICS maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Healthcare Services industry, as expected. 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.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for SOPHiA GENETICS that 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.