Harrow, Inc. (NASDAQ:HROW) Looks Just Right With A 27% Price Jump

Despite an already strong run, Harrow, Inc. (NASDAQ:HROW) shares have been powering on, with a gain of 27% in the last thirty days. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 4.1% over the last year.

After such a large jump in price, Harrow may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 7.8x, when you consider almost half of the companies in the Pharmaceuticals industry in the United States have P/S ratios under 4.4x and even P/S lower than 1.5x aren't out of the ordinary. 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.

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

Harrow certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

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Is There Enough Revenue Growth Forecasted For Harrow?

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

If we review the last year of revenue growth, the company posted a terrific increase of 48%. The strong recent performance means it was also able to grow revenue by 170% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 40% each year over the next three years. With the industry only predicted to deliver 28% per annum, the company is positioned for a stronger revenue result.

With this information, we can see why Harrow is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

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

The strong share price surge has lead to Harrow's P/S soaring as well. 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 Harrow 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.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Harrow with six simple checks on some of these key factors.

If these risks are making you reconsider your opinion on Harrow, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.