Those holding Journey Medical Corporation (NASDAQ:DERM) shares would be relieved that the share price has rebounded 30% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The annual gain comes to 195% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, Journey Medical may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.1x, considering almost half of all companies in the Pharmaceuticals industry in the United States have P/S ratios greater than 2.9x and even P/S higher than 16x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

What Does Journey Medical's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Journey Medical has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Is There Any Revenue Growth Forecasted For Journey Medical?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Journey Medical's to be considered reasonable.

Retrospectively, the last year delivered a decent 7.5% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 78% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 0.2% per annum as estimated by the dual analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 14% per annum, which is noticeably more attractive.

With this information, we can see why Journey Medical is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Journey Medical's stock price has surged recently, but its but its P/S still remains modest. 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.

As expected, our analysis of Journey Medical's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Journey Medical (of which 1 is significant!) you should know about.

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.