With a median price-to-sales (or "P/S") ratio of close to 3.2x in the Life Sciences industry in the United States, you could be forgiven for feeling indifferent about Sotera Health Company's (NASDAQ:SHC) P/S ratio of 3.1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

What Does Sotera Health's Recent Performance Look Like?

Sotera Health certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. One possibility is that the P/S ratio is moderate because investors think the company's revenue will be less resilient moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Sotera Health's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company managed to grow revenues by a handy 9.0% last year. The solid recent performance means it was also able to grow revenue by 28% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 6.0% each year as estimated by the seven analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 6.9% per annum, which is not materially different.

With this in mind, it makes sense that Sotera Health's P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What Does Sotera Health's P/S Mean For Investors?

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.

A Sotera Health's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Life Sciences industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

You need to take note of risks, for example - Sotera Health has 2 warning signs (and 1 which can't be ignored) we think you should know about.

If you're unsure about the strength of Sotera Health'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.