Enhabit, Inc.'s (NYSE:EHAB) Business And Shares Still Trailing The Industry
When you see that almost half of the companies in the Healthcare industry in the United States have price-to-sales ratios (or "P/S") above 1x, Enhabit, Inc. (NYSE:EHAB) looks to be giving off some buy signals with its 0.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
See our latest analysis for Enhabit
How Enhabit Has Been Performing
Enhabit could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially 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 Enhabit 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 Enhabit's is when the company's growth is on track to lag the industry.
Retrospectively, the last year delivered a frustrating 3.3% decrease to the company's top line. As a result, revenue from three years ago have also fallen 2.7% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 4.9% each year over the next three years. That's shaping up to be materially lower than the 7.7% each year growth forecast for the broader industry.
With this in consideration, its clear as to why Enhabit's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Final Word
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.
As we suspected, our examination of Enhabit's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
You should always think about risks. Case in point, we've spotted 2 warning signs for Enhabit you should be aware of, and 1 of them is a bit unpleasant.
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.
