Regis Healthcare Limited (ASX:REG) May Have Run Too Fast Too Soon With Recent 25% Price Plummet

Regis Healthcare Limited (ASX:REG) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

In spite of the heavy fall in price, there still wouldn't be many who think Regis Healthcare's price-to-sales (or "P/S") ratio of 1.7x is worth a mention when the median P/S in Australia's Healthcare industry is similar at about 1.3x. 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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See our latest analysis for Regis Healthcare

What Does Regis Healthcare's Recent Performance Look Like?

Recent times haven't been great for Regis Healthcare 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.

Keen to find out how analysts think Regis Healthcare's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Regis Healthcare's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Regis Healthcare's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 15% gain to the company's revenues. The latest three year period has also seen an excellent 60% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 9.9% each year during the coming three years according to the six analysts following the company. With the industry predicted to deliver 20% growth per year, the company is positioned for a weaker revenue result.

With this information, we find it interesting that Regis Healthcare is trading at a fairly similar P/S compared to the industry. 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 Final Word

With its share price dropping off a cliff, the P/S for Regis Healthcare looks to be in line with the rest of the Healthcare industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Given that Regis Healthcare'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. 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. A positive change is needed in order to justify the current price-to-sales ratio.

You need to take note of risks, for example - Regis Healthcare has 4 warning signs (and 1 which shouldn't be ignored) we think you should know about.

If these risks are making you reconsider your opinion on Regis Healthcare, 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.