Why Investors Shouldn't Be Surprised By GeneDx Holdings Corp.'s (NASDAQ:WGS) 32% Share Price Surge

GeneDx Holdings Corp. (NASDAQ:WGS) shares have had a really impressive month, gaining 32% after a shaky period beforehand. The last 30 days were the cherry on top of the stock's 1,179% gain in the last year, which is nothing short of spectacular.

Following the firm bounce in price, you could be forgiven for thinking GeneDx Holdings is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 9.1x, considering almost half the companies in the United States' Healthcare industry have P/S ratios below 1.1x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for GeneDx Holdings

How Has GeneDx Holdings Performed Recently?

GeneDx Holdings certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think GeneDx Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

How Is GeneDx Holdings' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as GeneDx Holdings' is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 51% gain to the company's top line. Pleasingly, revenue has also lifted 44% in aggregate from three years ago, thanks to the last 12 months of growth. 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 16% per annum as estimated by the six analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 8.2% per year, which is noticeably less attractive.

In light of this, it's understandable that GeneDx Holdings' 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.

The Final Word

GeneDx Holdings' P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 GeneDx Holdings maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Healthcare industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 1 warning sign for GeneDx Holdings you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.