Market Still Lacking Some Conviction On Evolent Health, Inc. (NYSE:EVH)
With a median price-to-sales (or "P/S") ratio of close to 2.3x in the Healthcare Services industry in the United States, you could be forgiven for feeling indifferent about Evolent Health, Inc.'s (NYSE:EVH) P/S ratio of 2.5x. 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 Evolent Health
How Evolent Health Has Been Performing
With revenue growth that's superior to most other companies of late, Evolent Health has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic 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 Evolent Health.
Do Revenue Forecasts Match The P/S Ratio?
In order to justify its P/S ratio, Evolent Health would need to produce growth that's similar to the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 50%. Pleasingly, revenue has also lifted 70% in aggregate from three years ago, thanks to the last 12 months of growth. 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 26% per annum during the coming three years according to the ten analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 18% each year, which is noticeably less attractive.
In light of this, it's curious that Evolent Health's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.
The Key Takeaway
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.
Despite enticing revenue growth figures that outpace the industry, Evolent Health's P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.
You always need to take note of risks, for example - Evolent Health has 2 warning signs we think you should be aware of.
If you're unsure about the strength of Evolent Health's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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