Journey Medical Corporation's (NASDAQ:DERM) Price Is Right But Growth Is Lacking After Shares Rocket 26%

Journey Medical Corporation (NASDAQ:DERM) shares have continued their recent momentum with a 26% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 66%.

In spite of the firm bounce in price, Journey Medical's price-to-sales (or "P/S") ratio of 0.9x might still make it look like a buy right now compared to the Pharmaceuticals industry in the United States, where around half of the companies have P/S ratios above 2.4x and even P/S above 16x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Journey Medical

How Has Journey Medical Performed Recently?

With revenue growth that's inferior to most other companies of late, Journey Medical has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Journey Medical will help you uncover what's on the horizon.

How Is Journey Medical's Revenue Growth Trending?

Journey Medical's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 6.2%. This was backed up an excellent period prior to see revenue up by 79% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 0.9% per annum as estimated by the two analysts watching the company. That's shaping up to be materially lower than the 38% per year growth forecast for the broader industry.

With this information, we can see why Journey Medical is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Journey Medical's P/S

The latest share price surge wasn't enough to lift Journey Medical's P/S close to the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Journey Medical maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 6 warning signs we've spotted with Journey Medical (including 2 which are a bit unpleasant).

If you're unsure about the strength of Journey Medical'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.