GeneDx Holdings Corp. (NASDAQ:WGS) Surges 52% Yet Its Low P/S Is No Reason For Excitement
GeneDx Holdings Corp. (NASDAQ:WGS) shareholders are no doubt pleased to see that the share price has bounced 52% 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 70% share price decline over the last year.
In spite of the firm bounce in price, given about half the companies operating in the United States' Healthcare industry have price-to-sales ratios (or "P/S") above 1x, you may still consider GeneDx Holdings as an attractive investment with its 0.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
Check out our latest analysis for GeneDx Holdings
What Does GeneDx Holdings' P/S Mean For Shareholders?
While the industry has experienced revenue growth lately, GeneDx Holdings' revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. 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 GeneDx Holdings.
How Is GeneDx Holdings' Revenue Growth Trending?
There's an inherent assumption that a company should underperform the industry for P/S ratios like GeneDx Holdings' to be considered reasonable.
Retrospectively, the last year delivered a frustrating 11% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 15% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.
Looking ahead now, revenue is anticipated to climb by 3.5% during the coming year according to the three analysts following the company. With the industry predicted to deliver 7.6% growth, the company is positioned for a weaker revenue result.
With this information, we can see why GeneDx Holdings is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
What We Can Learn From GeneDx Holdings' P/S?
Despite GeneDx Holdings' share price climbing recently, its P/S still lags most other companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
As we suspected, our examination of GeneDx Holdings' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 5 warning signs with GeneDx Holdings (at least 3 which shouldn't be ignored), 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.
