Further Upside For GeneDx Holdings Corp. (NASDAQ:WGS) Shares Could Introduce Price Risks After 42% Bounce

Despite an already strong run, GeneDx Holdings Corp. (NASDAQ:WGS) shares have been powering on, with a gain of 42% in the last thirty days. The last 30 days bring the annual gain to a very sharp 27%.

Although its price has surged higher, it's still not a stretch to say that GeneDx Holdings' price-to-sales (or "P/S") ratio of 1.5x right now seems quite "middle-of-the-road" compared to the Healthcare industry in the United States, where the median P/S ratio is around 1.2x. 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.

Check out our latest analysis for GeneDx Holdings

How Has GeneDx Holdings Performed Recently?

GeneDx Holdings hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. 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 GeneDx Holdings will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The P/S?

The only time you'd be comfortable seeing a P/S like GeneDx Holdings' is when the company's growth is tracking the industry closely.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 14%. Regardless, revenue has managed to lift by a handy 13% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 16% per annum over the next three years. With the industry only predicted to deliver 7.6% per year, the company is positioned for a stronger revenue result.

With this information, we find it interesting that GeneDx Holdings is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What Does GeneDx Holdings' P/S Mean For Investors?

Its shares have lifted substantially and now GeneDx Holdings' P/S is back within range of the industry median. 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.

Despite enticing revenue growth figures that outpace the industry, GeneDx Holdings' P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

You need to take note of risks, for example - GeneDx Holdings has 4 warning signs (and 2 which shouldn't be ignored) we think you should know about.

If you're unsure about the strength of GeneDx Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.