SelectQuote, Inc.'s (NYSE:SLQT) Shares Not Telling The Full Story
With a price-to-sales (or "P/S") ratio of 0.4x SelectQuote, Inc. (NYSE:SLQT) may be sending bullish signals at the moment, given that almost half of all the Insurance companies in the United States have P/S ratios greater than 0.9x and even P/S higher than 3x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
View our latest analysis for SelectQuote
How Has SelectQuote Performed Recently?
SelectQuote certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
Want the full picture on analyst estimates for the company? Then our free report on SelectQuote will help you uncover what's on the horizon.
How Is SelectQuote's Revenue Growth Trending?
In order to justify its P/S ratio, SelectQuote would need to produce sluggish growth that's trailing the industry.
Retrospectively, the last year delivered a decent 14% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 98% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to climb by 15% during the coming year according to the three analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 5.5%, which is noticeably less attractive.
With this in consideration, we find it intriguing that SelectQuote's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
What Does SelectQuote's P/S Mean For Investors?
Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
To us, it seems SelectQuote currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.
We don't want to rain on the parade too much, but we did also find 2 warning signs for SelectQuote that you need to be mindful of.
If you're unsure about the strength of SelectQuote'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.
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