Regis Healthcare Limited's (ASX:REG) P/S Is Still On The Mark Following 31% Share Price Bounce

The Regis Healthcare Limited (ASX:REG) share price has done very well over the last month, posting an excellent gain of 31%. The annual gain comes to 112% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Regis Healthcare's P/S ratio of 1.6x, since the median price-to-sales (or "P/S") ratio for the Healthcare industry in Australia is also close to 1.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Regis Healthcare

What Does Regis Healthcare's Recent Performance Look Like?

Regis Healthcare certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

In order to justify its P/S ratio, Regis Healthcare would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 30% gain to the company's top line. Pleasingly, revenue has also lifted 45% 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.

Looking ahead now, revenue is anticipated to climb by 7.0% each year during the coming three years according to the six analysts following the company. That's shaping up to be similar to the 8.1% per year growth forecast for the broader industry.

With this in mind, it makes sense that Regis Healthcare's P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What We Can Learn From Regis Healthcare's P/S?

Its shares have lifted substantially and now Regis Healthcare's P/S is back within range of the industry median. 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.

Our look at Regis Healthcare's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Regis Healthcare that you should be aware of.

If you're unsure about the strength of Regis Healthcare'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.