Chartwell Retirement Residences' (TSE:CSH.UN) Popularity With Investors Is Clear

When close to half the companies in the Healthcare industry in Canada have price-to-sales ratios (or "P/S") below 1.2x, you may consider Chartwell Retirement Residences (TSE:CSH.UN) as a stock to avoid entirely with its 5.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Chartwell Retirement Residences

What Does Chartwell Retirement Residences' Recent Performance Look Like?

Chartwell Retirement Residences could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Chartwell Retirement Residences will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Chartwell Retirement Residences?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. Revenue has also lifted 12% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 24% over the next year. That's shaping up to be materially higher than the 16% growth forecast for the broader industry.

With this information, we can see why Chartwell Retirement Residences is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Chartwell Retirement Residences maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Healthcare industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 5 warning signs for Chartwell Retirement Residences (1 is a bit concerning!) that you need to take into consideration.

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.