There wouldn't be many who think STERIS plc's (NYSE:STE) price-to-sales (or "P/S") ratio of 3.7x is worth a mention when the median P/S for the Medical Equipment industry in the United States is similar at about 3.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How STERIS Has Been Performing

With revenue growth that's superior to most other companies of late, STERIS has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

The only time you'd be comfortable seeing a P/S like STERIS' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 13% gain to the company's revenues. The latest three year period has also seen an excellent 77% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 6.1% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 10% per year, which is noticeably more attractive.

With this in mind, we find it intriguing that STERIS' P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does STERIS' P/S Mean For Investors?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

When you consider that STERIS' revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for STERIS that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.