Hims & Hers Health, Inc.'s (NYSE:HIMS) price-to-sales (or "P/S") ratio of 2.3x may not look like an appealing investment opportunity when you consider close to half the companies in the Healthcare industry in the United States have P/S ratios below 1.1x.   Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.  

See our latest analysis for Hims & Hers Health

NYSE:HIMS Price to Sales Ratio vs Industry January 15th 2024

What Does Hims & Hers Health's Recent Performance Look Like?

Hims & Hers Health certainly has been doing a good job lately as it's been growing revenue more than most other companies.   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.    

Want the full picture on analyst estimates for the company? Then our free report on Hims & Hers Health will help you uncover what's on the horizon.  

What Are Revenue Growth Metrics Telling Us About The High P/S?  

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

Retrospectively, the last year delivered an exceptional 78% gain to the company's top line.   This great performance means it was also able to deliver immense revenue growth over the last three years.  Therefore, it's fair to say the revenue growth recently has been superb for the company.  

Looking ahead now, revenue is anticipated to climb by 24% per annum during the coming three years according to the ten analysts following the company.  That's shaping up to be materially higher than the 7.3% per annum growth forecast for the broader industry.

With this in mind, it's not hard to understand why Hims & Hers Health's P/S is high relative to its industry peers.  Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.  

What We Can Learn From Hims & Hers Health's P/S?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Hims & Hers Health maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Healthcare industry, as expected.  At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio.  Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.    

We don't want to rain on the parade too much, but we did also find 1 warning sign for Hims & Hers Health that you need to be mindful of.  

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.