Some Confidence Is Lacking In dentalcorp Holdings Ltd.'s (TSE:DNTL) P/S

With a median price-to-sales (or "P/S") ratio of close to 1.1x in the Healthcare industry in Canada, you could be forgiven for feeling indifferent about dentalcorp Holdings Ltd.'s (TSE:DNTL) P/S ratio, which comes in at about the same. 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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View our latest analysis for dentalcorp Holdings

What Does dentalcorp Holdings' P/S Mean For Shareholders?

Recent times haven't been great for dentalcorp Holdings 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.

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How Is dentalcorp Holdings' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like dentalcorp Holdings' to be considered reasonable.

Retrospectively, the last year delivered a decent 8.4% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 50% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 11% during the coming year according to the ten analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 24%, which is noticeably more attractive.

With this in mind, we find it intriguing that dentalcorp Holdings' P/S is closely matching its industry peers. 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.

What Does dentalcorp Holdings' P/S Mean For Investors?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

When you consider that dentalcorp Holdings' revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You should always think about risks. Case in point, we've spotted 1 warning sign for dentalcorp Holdings you should be aware of.

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.