Despite an already strong run, Forian Inc. (NASDAQ:FORA) shares have been powering on, with a gain of 29% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 10% is also fairly reasonable.

Following the firm bounce in price, when almost half of the companies in the United States' Healthcare Services industry have price-to-sales ratios (or "P/S") below 2.1x, you may consider Forian as a stock probably not worth researching with its 3.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

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

With revenue growth that's superior to most other companies of late, Forian has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is Forian's Revenue Growth Trending?

In order to justify its P/S ratio, Forian would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 84%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 27% as estimated by the two analysts watching the company. Meanwhile, the broader industry is forecast to expand by 13%, which paints a poor picture.

In light of this, it's alarming that Forian's P/S sits above the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh heavily on the share price eventually.

What Does Forian's P/S Mean For Investors?

Forian shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

For a company with revenues that are set to decline in the context of a growing industry, Forian's P/S is much higher than we would've anticipated. Right now we aren't comfortable with the high P/S as the predicted future revenue decline likely to impact the positive sentiment that's propping up the P/S. Unless these conditions improve markedly, it'll be a challenging time for shareholders.

Before you settle on your opinion, we've discovered 2 warning signs for Forian that 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.