When close to half the companies in the Healthcare industry in the United States have price-to-sales ratios (or "P/S") below 1x, you may consider Castle Biosciences, Inc. (NASDAQ:CSTL) as a stock to avoid entirely with its 3x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for Castle Biosciences
How Castle Biosciences Has Been Performing
With revenue growth that's superior to most other companies of late, Castle Biosciences has been doing relatively well. 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.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Castle Biosciences.
Do Revenue Forecasts Match The High P/S Ratio?
The only time you'd be truly comfortable seeing a P/S as steep as Castle Biosciences' is when the company's growth is on track to outshine the industry decidedly.
Retrospectively, the last year delivered an exceptional 55% gain to the company's top line. Pleasingly, revenue has also lifted 205% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to climb by 15% per annum during the coming three years according to the nine analysts following the company. With the industry only predicted to deliver 7.1% each year, the company is positioned for a stronger revenue result.
In light of this, it's understandable that Castle Biosciences' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Final Word
Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
Our look into Castle Biosciences 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. It's hard to see the share price falling strongly in the near future under these circumstances.
Plus, you should also learn about these 2 warning signs we've spotted with Castle Biosciences.
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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オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。