Investors Still Waiting For A Pull Back In Phreesia, Inc. (NYSE:PHR)

Phreesia, Inc.'s (NYSE:PHR) price-to-sales (or "P/S") ratio of 4.8x may look like a poor investment opportunity when you consider close to half the companies in the Healthcare Services industry in the United States have P/S ratios below 2x. 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 Phreesia

How Phreesia Has Been Performing

Phreesia 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Phreesia.

How Is Phreesia's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Phreesia's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 29%. The latest three year period has also seen an excellent 142% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 19% per year as estimated by the analysts watching the company. With the industry only predicted to deliver 14% each year, the company is positioned for a stronger revenue result.

With this information, we can see why Phreesia is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Phreesia's P/S?

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.

Our look into Phreesia shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 3 warning signs for Phreesia that we have uncovered.

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.