NeuPath Health Inc. (CVE:NPTH) Stock Catapults 27% Though Its Price And Business Still Lag The Industry

The NeuPath Health Inc. (CVE:NPTH) share price has done very well over the last month, posting an excellent gain of 27%. Looking further back, the 11% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, when close to half the companies operating in Canada's Healthcare industry have price-to-sales ratios (or "P/S") above 1.1x, you may still consider NeuPath Health as an enticing stock to check out with its 0.2x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for NeuPath Health

What Does NeuPath Health's Recent Performance Look Like?

Revenue has risen firmly for NeuPath Health recently, which is pleasing to see. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on NeuPath Health will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as NeuPath Health's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 8.2%. The latest three year period has also seen a 22% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 17% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that NeuPath Health's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Key Takeaway

Despite NeuPath Health's share price climbing recently, its P/S still lags most other companies. 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.

Our examination of NeuPath Health confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with NeuPath Health, and understanding should be part of your investment process.

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.