Despite an already strong run, Sotera Health Company (NASDAQ:SHC) shares have been powering on, with a gain of 25% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 14% over that time.

In spite of the firm bounce in price, it's still not a stretch to say that Sotera Health's price-to-sales (or "P/S") ratio of 3.8x right now seems quite "middle-of-the-road" compared to the Life Sciences industry in the United States, where the median P/S ratio is around 3.6x. 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 P/S Mean For Shareholders?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Sotera Health has been doing quite well of late. One possibility is that the P/S ratio is moderate because investors think the company's revenue will be less resilient moving forward. Those who are bullish on Sotera Health will be hoping that this isn't the case, so that they can pick up the stock at a slightly lower valuation.

Is There Some Revenue Growth Forecasted For Sotera Health?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Sotera Health's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 12%. The latest three year period has also seen a 25% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 4.0% during the coming year according to the seven analysts following the company. That's shaping up to be similar to the 4.9% growth forecast for the broader industry.

With this information, we can see why Sotera Health is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

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

Its shares have lifted substantially and now Sotera Health's P/S is back within range of the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look at Sotera Health's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. 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 is potentially serious) we think you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com