Monash IVF Group Limited's (ASX:MVF) Popularity With Investors Under Threat As Stock Sinks 26%

Monash IVF Group Limited (ASX:MVF) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 43% in that time.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Monash IVF Group's P/S ratio of 1.2x, since the median price-to-sales (or "P/S") ratio for the Healthcare industry in Australia is also close to 1.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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Check out our latest analysis for Monash IVF Group

What Does Monash IVF Group's P/S Mean For Shareholders?

Recent times have been advantageous for Monash IVF Group as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Monash IVF Group's to be considered reasonable.

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. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 4.1% over the next year. Meanwhile, the rest of the industry is forecast to expand by 67%, which is noticeably more attractive.

With this information, we find it interesting that Monash IVF Group is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. 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 Monash IVF Group's P/S?

With its share price dropping off a cliff, the P/S for Monash IVF Group looks to be in line with the rest of the Healthcare 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 Monash IVF Group'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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Monash IVF Group that you should be aware of.

If you're unsure about the strength of Monash IVF Group'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.