Why Investors Shouldn't Be Surprised By SOPHiA GENETICS SA's (NASDAQ:SOPH) 35% Share Price Surge

SOPHiA GENETICS SA (NASDAQ:SOPH) shareholders would be excited to see that the share price has had a great month, posting a 35% gain and recovering from prior weakness. The last month tops off a massive increase of 129% in the last year.

After such a large jump in price, when almost half of the companies in the United States' Healthcare Services industry have price-to-sales ratios (or "P/S") below 1.9x, you may consider SOPHiA GENETICS as a stock not worth researching with its 4.3x 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.

See our latest analysis for SOPHiA GENETICS

What Does SOPHiA GENETICS' Recent Performance Look Like?

SOPHiA GENETICS 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.

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.

How Is SOPHiA GENETICS' Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 30% last year. The strong recent performance means it was also able to grow revenue by 107% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 28% per annum over the next three years. That's shaping up to be materially higher than the 15% per annum growth forecast for the broader industry.

In light of this, it's understandable that SOPHiA GENETICS' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On SOPHiA GENETICS' P/S

SOPHiA GENETICS' P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

As we suspected, our examination of SOPHiA GENETICS' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. 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 SOPHiA GENETICS is showing 2 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on SOPHiA GENETICS, 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.