Yahoo Finance Journey Medical Corporation (NASDAQ:DERM) Surges 69% Yet Its Low P/S Is No Reason For Excitement
Despite an already strong run, Journey Medical Corporation (NASDAQ:DERM) shares have been powering on, with a gain of 69% in the last thirty days. This latest share price bounce rounds out a remarkable 418% gain over the last twelve months.
Even after such a large jump in price, Journey Medical's price-to-sales (or "P/S") ratio of 1.6x 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 3.1x and even P/S above 21x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
See our latest analysis for Journey Medical
What Does Journey Medical's P/S Mean For Shareholders?
With revenue growth that's inferior to most other companies of late, Journey Medical has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. 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?
The only time you'd be truly comfortable seeing a P/S as low as Journey Medical's is when the company's growth is on track to lag the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 6.2%. The latest three year period has also seen an excellent 79% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 3.2% per annum over the next three years. With the industry predicted to deliver 53% growth per annum, the company is positioned for a weaker revenue result.
In light of this, it's understandable that Journey Medical's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Key Takeaway
The latest share price surge wasn't enough to lift Journey Medical's P/S close to the industry median. 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 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. It's hard to see the share price rising strongly in the near future under these circumstances.
Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Journey Medical (1 can't be ignored) you should be aware of.
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.
