Hims & Hers Health, Inc. (NYSE:HIMS) shareholders have had their patience rewarded with a 48% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 16% is also fairly reasonable.

Since its price has surged higher, given around half the companies in the United States' Healthcare industry have price-to-sales ratios (or "P/S") below 0.9x, you may consider Hims & Hers Health as a stock to avoid entirely with its 3.3x 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 so lofty.

How Hims & Hers Health Has Been Performing

Hims & Hers Health certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is Hims & Hers Health's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Hims & Hers Health's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 65% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 27% per annum as estimated by the eleven analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 7.7% per annum, which is noticeably less attractive.

In light of this, it's understandable that Hims & Hers Health's 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 Bottom Line On Hims & Hers Health's P/S

Hims & Hers Health's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 into Hims & Hers Health shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Hims & Hers Health you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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