Why We're Not Concerned Yet About Healwell AI Inc.'s (TSE:AIDX) 30% Share Price Plunge

The Healwell AI Inc. (TSE:AIDX) share price has fared very poorly over the last month, falling by a substantial 30%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 34% share price drop.

In spite of the heavy fall in price, you could still be forgiven for thinking Healwell AI is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 3x, considering almost half the companies in Canada's Healthcare industry have P/S ratios below 0.8x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Healwell AI

What Does Healwell AI's Recent Performance Look Like?

Recent times have been advantageous for Healwell AI as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

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How Is Healwell AI's Revenue Growth Trending?

In order to justify its P/S ratio, Healwell AI would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. The amazing performance means it was also able to deliver huge revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 30% per year during the coming three years according to the ten analysts following the company. That's shaping up to be materially higher than the 5.7% per annum growth forecast for the broader industry.

In light of this, it's understandable that Healwell AI's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Healwell AI's P/S?

Even after such a strong price drop, Healwell AI's P/S still exceeds the industry median significantly. 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 we suspected, our examination of Healwell AI's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Healwell AI (1 is concerning!) that you should be aware of before investing here.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.