There's Reason For Concern Over HireRight Holdings Corporation's (NYSE:HRT) Massive 37% Price Jump
HireRight Holdings Corporation (NYSE:HRT) shares have had a really impressive month, gaining 37% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 12% is also fairly reasonable.
Although its price has surged higher, it's still not a stretch to say that HireRight Holdings' price-to-sales (or "P/S") ratio of 1.2x right now seems quite "middle-of-the-road" compared to the Professional Services industry in the United States, seeing as it matches the P/S ratio of the wider industry. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
View our latest analysis for HireRight Holdings
What Does HireRight Holdings' Recent Performance Look Like?
HireRight Holdings could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may 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 HireRight Holdings will help you uncover what's on the horizon.
What Are Revenue Growth Metrics Telling Us About The P/S?
HireRight Holdings' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
Retrospectively, the last year delivered a frustrating 12% decrease to the company's top line. Still, the latest three year period has seen an excellent 35% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.
Looking ahead now, revenue is anticipated to climb by 2.9% during the coming year according to the ten analysts following the company. With the industry predicted to deliver 6.8% growth, the company is positioned for a weaker revenue result.
With this in mind, we find it intriguing that HireRight Holdings' P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.
The Key Takeaway
HireRight Holdings' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
Given that HireRight Holdings' 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. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. 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.
Having said that, be aware HireRight Holdings is showing 4 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable.
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.
