Even With A 27% Surge, Cautious Investors Are Not Rewarding Nutex Health Inc.'s (NASDAQ:NUTX) Performance Completely
Nutex Health Inc. (NASDAQ:NUTX) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 79% share price decline over the last year.
Even after such a large jump in price, there still wouldn't be many who think Nutex Health's price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S in the United States' Healthcare industry is similar at about 1.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
View our latest analysis for Nutex Health
What Does Nutex Health's P/S Mean For Shareholders?
With revenue growth that's inferior to most other companies of late, Nutex Health has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. However, if this isn't the case, investors might get caught out paying too much for the stock.
Want the full picture on analyst estimates for the company? Then our free report on Nutex Health will help you uncover what's on the horizon.
Is There Some Revenue Growth Forecasted For Nutex Health?
In order to justify its P/S ratio, Nutex Health would need to produce growth that's similar to the industry.
If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with revenue down 15% overall from three years ago. 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 two analysts covering the company suggest revenue should grow by 30% over the next year. That's shaping up to be materially higher than the 7.2% growth forecast for the broader industry.
With this information, we find it interesting that Nutex Health is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.
What Does Nutex Health's P/S Mean For Investors?
Nutex Health appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We've established that Nutex Health currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Nutex Health, and understanding these should be part of your investment process.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.
