The Market Lifts Hydreight Technologies Inc. (CVE:NURS) Shares 136% But It Can Do More

Hydreight Technologies Inc. (CVE:NURS) shares have continued their recent momentum with a 136% gain in the last month alone. The annual gain comes to 287% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, Hydreight Technologies may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 3.1x, considering almost half of all companies in the Healthcare Services industry in Canada have P/S ratios greater than 10.6x and even P/S higher than 64x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

View our latest analysis for Hydreight Technologies

What Does Hydreight Technologies' P/S Mean For Shareholders?

Hydreight Technologies certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Although there are no analyst estimates available for Hydreight Technologies, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Hydreight Technologies' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 56%. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 9.3% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Hydreight Technologies' P/S isn't as high compared to that of its industry peers. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Hydreight Technologies' P/S?

Hydreight Technologies' recent share price jump still sees fails to bring its P/S alongside the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We're very surprised to see Hydreight Technologies currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

Having said that, be aware Hydreight Technologies is showing 5 warning signs in our investment analysis, and 3 of those make us uncomfortable.

If these risks are making you reconsider your opinion on Hydreight Technologies, 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.