CareDx, Inc (NASDAQ:CDNA) shareholders have had their patience rewarded with a 62% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 84% in the last year.

Although its price has surged higher, CareDx's price-to-sales (or "P/S") ratio of 2.8x might still make it look like a strong buy right now compared to the wider Biotechs industry in the United States, where around half of the companies have P/S ratios above 12.5x and even P/S above 66x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

What Does CareDx's Recent Performance Look Like?

While the industry has experienced revenue growth lately, CareDx's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

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

In order to justify its P/S ratio, CareDx would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a frustrating 14% decrease to the company's top line. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 24% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 0.7% over the next year. That's shaping up to be materially lower than the 342% growth forecast for the broader industry.

With this information, we can see why CareDx is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From CareDx's P/S?

CareDx's recent share price jump still sees fails to bring its P/S alongside the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of CareDx's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for CareDx you should know about.

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.