Getting In Cheap On Augmedix, Inc. (NASDAQ:AUGX) Might Be Difficult
Augmedix, Inc.'s (NASDAQ:AUGX) price-to-sales (or "P/S") ratio of 5.6x may look like a poor investment opportunity when you consider close to half the companies in the Healthcare Services industry in the United States have P/S ratios below 2.1x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for Augmedix
What Does Augmedix's P/S Mean For Shareholders?
With revenue growth that's superior to most other companies of late, Augmedix has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Keen to find out how analysts think Augmedix's future stacks up against the industry? In that case, our free report is a great place to start.
Is There Enough Revenue Growth Forecasted For Augmedix?
In order to justify its P/S ratio, Augmedix would need to produce outstanding growth that's well in excess of the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 40%. The strong recent performance means it was also able to grow revenue by 142% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.
Looking ahead now, revenue is anticipated to climb by 40% during the coming year according to the five analysts following the company. That's shaping up to be materially higher than the 13% growth forecast for the broader industry.
With this in mind, it's not hard to understand why Augmedix's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Final Word
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.
Our look into Augmedix shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.
We don't want to rain on the parade too much, but we did also find 3 warning signs for Augmedix that you need to be mindful of.
If you're unsure about the strength of Augmedix's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.
