Little Excitement Around NantHealth, Inc.'s (NASDAQ:NH) Revenues
You may think that with a price-to-sales (or "P/S") ratio of 0.2x NantHealth, Inc. (NASDAQ:NH) is definitely a stock worth checking out, seeing as almost half of all the Healthcare Services companies in the United States have P/S ratios greater than 2.6x and even P/S above 6x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for NantHealth
How NantHealth Has Been Performing
The recent revenue growth at NantHealth would have to be considered satisfactory if not spectacular. Perhaps the market believes the recent revenue performance might fall short of industry figures in the near future, leading to a reduced P/S. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.
Although there are no analyst estimates available for NantHealth, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
NantHealth's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.
Taking a look back first, we see that the company managed to grow revenues by a handy 6.9% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 13% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 12% shows it's an unpleasant look.
In light of this, it's understandable that NantHealth's P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.
What Does NantHealth's P/S Mean For Investors?
Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
It's no surprise that NantHealth maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.
We don't want to rain on the parade too much, but we did also find 4 warning signs for NantHealth (3 are a bit concerning!) that you need to be mindful 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.
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