DarioHealth Corp. (NASDAQ:DRIO) shares have had a horrible month, losing 42% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 71% share price decline.

After such a large drop in price, DarioHealth's price-to-sales (or "P/S") ratio of 1.7x 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 2.3x and even P/S above 6x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

How Has DarioHealth Performed Recently?

While the industry has experienced revenue growth lately, DarioHealth's revenue has gone into reverse gear, which is not great. 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 DarioHealth.

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

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

Retrospectively, the last year delivered a frustrating 29% decrease to the company's top line. Still, the latest three year period has seen an excellent 100% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 55% per year as estimated by the dual analysts watching the company. With the industry only predicted to deliver 12% per year, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that DarioHealth's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What Does DarioHealth's P/S Mean For Investors?

DarioHealth's P/S has taken a dip along with its share price. 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.

DarioHealth's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Plus, you should also learn about these 5 warning signs we've spotted with DarioHealth.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com