Unfortunately for some shareholders, the Health Catalyst, Inc. (NASDAQ:HCAT) share price has dived 25% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 53% loss during that time.
Since its price has dipped substantially, Health Catalyst's price-to-sales (or "P/S") ratio of 1.2x might make it look like a buy right now compared to the Healthcare Services industry in the United States, where around half of the companies have P/S ratios above 2.2x and even P/S above 5x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
NasdaqGS:HCAT Price to Sales Ratio vs Industry April 13th 2024
What Does Health Catalyst's P/S Mean For Shareholders?
With revenue growth that's inferior to most other companies of late, Health Catalyst has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.
Want the full picture on analyst estimates for the company? Then our free report on Health Catalyst will help you uncover what's on the horizon.
Is There Any Revenue Growth Forecasted For Health Catalyst?
The only time you'd be truly comfortable seeing a P/S as low as Health Catalyst's is when the company's growth is on track to lag the industry.
Taking a look back first, we see that the company managed to grow revenues by a handy 7.1% last year. Pleasingly, revenue has also lifted 57% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Turning to the outlook, the next three years should generate growth of 9.7% per annum as estimated by the analysts watching the company. With the industry predicted to deliver 13% growth each year, the company is positioned for a weaker revenue result.
With this in consideration, its clear as to why Health Catalyst's P/S is falling short industry peers. 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 Health Catalyst's P/S?
Health Catalyst's P/S has taken a dip along with its share price. 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.
We've established that Health Catalyst maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.
We don't want to rain on the parade too much, but we did also find 2 warning signs for Health Catalyst that you need to be mindful of.
If you're unsure about the strength of Health Catalyst's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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.