Unfortunately for some shareholders, the American Well Corporation (NYSE:AMWL) 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 83% loss during that time.
Since its price has dipped substantially, American Well may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.5x, considering almost half of all companies in the Healthcare Services industry in the United States have P/S ratios greater than 2.2x and even P/S higher than 6x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
NYSE:AMWL Price to Sales Ratio vs Industry June 2nd 2024
What Does American Well's P/S Mean For Shareholders?
American Well hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on American Well.
How Is American Well's Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as low as American Well's is when the company's growth is on track to lag the industry.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 8.1%. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.
Looking ahead now, revenue is anticipated to climb by 14% per year during the coming three years according to the twelve analysts following the company. That's shaping up to be similar to the 12% each year growth forecast for the broader industry.
In light of this, it's peculiar that American Well's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.
The Key Takeaway
The southerly movements of American Well's shares means its P/S is now sitting at a pretty low level. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
Our examination of American Well's revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.
We don't want to rain on the parade too much, but we did also find 3 warning signs for American Well that you need to be mindful 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.