Market Participants Recognise Accolade, Inc.'s (NASDAQ:ACCD) Revenues Pushing Shares 30% Higher
Accolade, Inc. (NASDAQ:ACCD) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. The last 30 days bring the annual gain to a very sharp 26%.
After such a large jump in price, when almost half of the companies in the United States' Healthcare industry have price-to-sales ratios (or "P/S") below 1x, you may consider Accolade as a stock probably not worth researching with its 2.1x 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 as high as it is.
Check out our latest analysis for Accolade
What Does Accolade's P/S Mean For Shareholders?
Recent times haven't been great for Accolade as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Accolade.
How Is Accolade's Revenue Growth Trending?
There's an inherent assumption that a company should outperform the industry for P/S ratios like Accolade's to be considered reasonable.
Taking a look back first, we see that the company managed to grow revenues by a handy 8.5% last year. Pleasingly, revenue has also lifted 159% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Looking ahead now, revenue is anticipated to climb by 20% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 7.7% per annum, which is noticeably less attractive.
With this in mind, it's not hard to understand why Accolade's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Key Takeaway
Accolade's P/S is on the rise since its shares have risen strongly. 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.
We've established that Accolade maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Healthcare industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Accolade, and understanding them should be part of your investment process.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.
