There's Reason For Concern Over Health Catalyst, Inc.'s (NASDAQ:HCAT) Price
There wouldn't be many who think Health Catalyst, Inc.'s (NASDAQ:HCAT) price-to-sales (or "P/S") ratio of 2.6x is worth a mention when the median P/S for the Healthcare Services industry in the United States is very similar. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
Check out our latest analysis for Health Catalyst
What Does Health Catalyst's Recent Performance Look Like?
Recent times haven't been great for Health Catalyst as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may be a little nervous about the viability of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Health Catalyst.
How Is Health Catalyst's Revenue Growth Trending?
There's an inherent assumption that a company should be matching the industry for P/S ratios like Health Catalyst's to be considered reasonable.
If we review the last year of revenue growth, the company posted a worthy increase of 14%. Pleasingly, revenue has also lifted 78% 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.
Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 11% each year over the next three years. With the industry predicted to deliver 18% growth per annum, the company is positioned for a weaker revenue result.
In light of this, it's curious that Health Catalyst's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.
What We Can Learn From Health Catalyst's P/S?
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.
Given that Health Catalyst's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.
It is also worth noting that we have found 2 warning signs for Health Catalyst that you need to take into consideration.
If you're unsure about the strength of Health Catalyst'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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