Ramsay Health Care Limited's (ASX:RHC) Low P/S No Reason For Excitement

When close to half the companies operating in the Healthcare industry in Australia have price-to-sales ratios (or "P/S") above 1.2x, you may consider Ramsay Health Care Limited (ASX:RHC) as an attractive investment with its 0.5x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Ramsay Health Care

What Does Ramsay Health Care's Recent Performance Look Like?

Recent times haven't been great for Ramsay Health Care as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is Ramsay Health Care's Revenue Growth Trending?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 6.8% last year. This was backed up an excellent period prior to see revenue up by 34% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 5.2% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 20% per year, which is noticeably more attractive.

With this in consideration, its clear as to why Ramsay Health Care's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Ramsay Health Care's 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 expected, our analysis of Ramsay Health Care's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

It is also worth noting that we have found 3 warning signs for Ramsay Health Care (1 shouldn't be ignored!) that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.