Quipt Home Medical Corp.'s (TSE:QIPT) 26% Price Boost Is Out Of Tune With Revenues

Quipt Home Medical Corp. (TSE:QIPT) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 25% in the last twelve months.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Quipt Home Medical's P/S ratio of 0.7x, since the median price-to-sales (or "P/S") ratio for the Healthcare industry in Canada is about the same. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Quipt Home Medical

What Does Quipt Home Medical's Recent Performance Look Like?

Quipt Home Medical certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on analyst estimates for the company? Then our free report on Quipt Home Medical will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

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

If we review the last year of revenue growth, the company posted a terrific increase of 47%. The latest three year period has also seen an excellent 198% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 12% during the coming year according to the eight analysts following the company. That's shaping up to be materially lower than the 26% growth forecast for the broader industry.

In light of this, it's curious that Quipt Home Medical's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Quipt Home Medical's P/S?

Its shares have lifted substantially and now Quipt Home Medical's P/S is back within range of the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at the analysts forecasts of Quipt Home Medical's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. 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.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Quipt Home Medical with six simple checks.

If these risks are making you reconsider your opinion on Quipt Home Medical, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com