Revenues Tell The Story For Phreesia, Inc. (NYSE:PHR)

There wouldn't be many who think Phreesia, Inc.'s (NYSE:PHR) price-to-sales (or "P/S") ratio of 3.4x is worth a mention when the median P/S for the Healthcare Services industry in the United States is similar at about 3.3x. 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.

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What Does Phreesia's P/S Mean For Shareholders?

Recent revenue growth for Phreesia has been in line with the industry. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. Those who are bullish on Phreesia will be hoping that revenue performance can pick up, so that they can pick up the stock at a slightly lower valuation.

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

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

Taking a look back first, we see that the company grew revenue by an impressive 18% last year. Pleasingly, revenue has also lifted 97% 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.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 13% each year over the next three years. That's shaping up to be similar to the 11% per annum growth forecast for the broader industry.

With this information, we can see why Phreesia is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

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.

A Phreesia's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Healthcare Services industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Phreesia that you should be aware of.

If you're unsure about the strength of Phreesia's 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.