Aveanna Healthcare Holdings Inc.'s (NASDAQ:AVAH) Share Price Boosted 40% But Its Business Prospects Need A Lift Too
Those holding Aveanna Healthcare Holdings Inc. (NASDAQ:AVAH) shares would be relieved that the share price has rebounded 40% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The last 30 days bring the annual gain to a very sharp 60%.
Even after such a large jump in price, when close to half the companies operating in the United States' Healthcare industry have price-to-sales ratios (or "P/S") above 1.1x, you may still consider Aveanna Healthcare Holdings as an enticing stock to check out with its 0.2x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for Aveanna Healthcare Holdings
How Has Aveanna Healthcare Holdings Performed Recently?
With revenue growth that's inferior to most other companies of late, Aveanna Healthcare Holdings has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. 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 Aveanna Healthcare Holdings will help you uncover what's on the horizon.
Do Revenue Forecasts Match The Low P/S Ratio?
The only time you'd be truly comfortable seeing a P/S as low as Aveanna Healthcare Holdings' is when the company's growth is on track to lag the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 6.7%. The solid recent performance means it was also able to grow revenue by 25% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.
Turning to the outlook, the next year should generate growth of 4.0% as estimated by the seven analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 7.2%, which is noticeably more attractive.
In light of this, it's understandable that Aveanna Healthcare Holdings' P/S sits below the majority of other companies. 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 Aveanna Healthcare Holdings' P/S?
Aveanna Healthcare Holdings' stock price has surged recently, but its but its P/S still remains modest. 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.
We've established that Aveanna Healthcare Holdings 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. It's hard to see the share price rising strongly in the near future under these circumstances.
Before you settle on your opinion, we've discovered 2 warning signs for Aveanna Healthcare Holdings (1 makes us a bit uncomfortable!) that you should be aware 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.
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.
