Acadia Healthcare Company, Inc. (NASDAQ:ACHC) shares have had a horrible month, losing 28% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 14% in that time.

Even after such a large drop in price, you could still be forgiven for thinking Acadia Healthcare Company is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.8x, considering almost half the companies in the United States' Healthcare industry have P/S ratios below 1.2x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

What Does Acadia Healthcare Company's Recent Performance Look Like?

Recent revenue growth for Acadia Healthcare Company has been in line with the industry. Perhaps the market is expecting future revenue performance to improve, justifying the currently elevated P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is Acadia Healthcare Company's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Acadia Healthcare Company's is when the company's growth is on track to outshine the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 10% last year. This was backed up an excellent period prior to see revenue up by 38% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue should grow by 11% per annum over the next three years. With the industry only predicted to deliver 7.4% each year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Acadia Healthcare Company's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Acadia Healthcare Company's P/S?

Acadia Healthcare Company's P/S remain high even after its stock plunged. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look into Acadia Healthcare Company shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Having said that, be aware Acadia Healthcare Company is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Acadia Healthcare Company'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.