Improved Revenues Required Before ImExHS Limited (ASX:IME) Shares Find Their Feet

With a price-to-sales (or "P/S") ratio of 1.8x ImExHS Limited (ASX:IME) may be sending very bullish signals at the moment, given that almost half of all the Healthcare Services companies in Australia have P/S ratios greater than 7.2x and even P/S higher than 32x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for ImExHS

What Does ImExHS' Recent Performance Look Like?

ImExHS could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on ImExHS.

Is There Any Revenue Growth Forecasted For ImExHS?

The only time you'd be truly comfortable seeing a P/S as depressed as ImExHS' is when the company's growth is on track to lag the industry decidedly.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 7.0%. Even so, admirably revenue has lifted 74% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 35% during the coming year according to the only analyst following the company. With the industry predicted to deliver 51% growth, the company is positioned for a weaker revenue result.

With this information, we can see why ImExHS is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On ImExHS' P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of ImExHS' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 3 warning signs for ImExHS (1 shouldn't be ignored!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on ImExHS, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.