What Surgery Partners, Inc.'s (NASDAQ:SGRY) P/S Is Not Telling You
When you see that almost half of the companies in the Healthcare industry in the United States have price-to-sales ratios (or "P/S") below 1.2x, Surgery Partners, Inc. (NASDAQ:SGRY) looks to be giving off some sell signals with its 1.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.
See our latest analysis for Surgery Partners
How Has Surgery Partners Performed Recently?
With revenue growth that's superior to most other companies of late, Surgery Partners has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Surgery Partners will help you uncover what's on the horizon.
Is There Enough Revenue Growth Forecasted For Surgery Partners?
In order to justify its P/S ratio, Surgery Partners would need to produce impressive growth in excess of the industry.
Retrospectively, the last year delivered a decent 14% gain to the company's revenues. The latest three year period has also seen an excellent 39% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Turning to the outlook, the next three years should generate growth of 10% each year as estimated by the nine analysts watching the company. That's shaping up to be similar to the 8.7% each year growth forecast for the broader industry.
With this in consideration, we find it intriguing that Surgery Partners' P/S is higher than its industry peers. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.
What Does Surgery Partners' 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.
Seeing as its revenues are forecast to grow in line with the wider industry, it would appear that Surgery Partners currently trades on a higher than expected P/S. The fact that the revenue figures aren't setting the world alight has us doubtful that the company's elevated P/S can be sustainable for the long term. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.
Having said that, be aware Surgery Partners is showing 2 warning signs in our investment analysis, you should know about.
If you're unsure about the strength of Surgery Partners' 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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