Delcath Systems, Inc. (NASDAQ:DCTH) shares have retraced a considerable 27% in the last month, reversing a fair amount of their solid recent performance. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 204% in the last twelve months.

Even after such a large drop in price, Delcath Systems may still be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 10.5x, since almost half of all companies in the Medical Equipment industry in the United States have P/S ratios under 3.2x and even P/S lower than 1.2x are not unusual. 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 Has Delcath Systems Performed Recently?

Recent times have been advantageous for Delcath Systems as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Delcath Systems will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

Delcath Systems' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 60% each year during the coming three years according to the six analysts following the company. That's shaping up to be materially higher than the 9.2% per annum growth forecast for the broader industry.

With this in mind, it's not hard to understand why Delcath Systems' 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.

The Final Word

Even after such a strong price drop, Delcath Systems' P/S still exceeds the industry median significantly. 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.

As we suspected, our examination of Delcath Systems' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. 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.

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.

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.