Investors Don't See Light At End Of ImExHS Limited's (ASX:IME) Tunnel And Push Stock Down 26%

To the annoyance of some shareholders, ImExHS Limited (ASX:IME) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 49% share price drop.

After such a large drop in price, ImExHS may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.6x, considering almost half of all companies in the Healthcare Services industry in Australia have P/S ratios greater than 8.3x and even P/S higher than 26x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for ImExHS

What Does ImExHS' Recent Performance Look Like?

Recent times have been advantageous for ImExHS as its revenues have been rising faster 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on ImExHS will help you uncover what's on the horizon.

How Is ImExHS' Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like ImExHS' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 51%. Pleasingly, revenue has also lifted 114% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 23% over the next year. Meanwhile, the rest of the industry is forecast to expand by 35%, which is noticeably more attractive.

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 Key Takeaway

Shares in ImExHS have plummeted and its P/S has followed suit. 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 expected, our analysis of ImExHS' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor 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.

You should always think about risks. Case in point, we've spotted 4 warning signs for ImExHS you should be aware of, and 2 of them are potentially serious.

If you're unsure about the strength of ImExHS' 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.