Benign Growth For Cegedim SA (EPA:ALCGM) Underpins Its Share Price

You may think that with a price-to-sales (or "P/S") ratio of 0.2x Cegedim SA (EPA:ALCGM) is definitely a stock worth checking out, seeing as almost half of all the Healthcare Services companies in France have P/S ratios greater than 2.4x and even P/S above 6x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Cegedim

How Cegedim Has Been Performing

There hasn't been much to differentiate Cegedim's and the industry's revenue growth lately. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. Those who are bullish on Cegedim will be hoping that this isn't the case.

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Is There Any Revenue Growth Forecasted For Cegedim?

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

If we review the last year of revenue growth, the company posted a worthy increase of 3.8%. Revenue has also lifted 22% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 4.3% as estimated by the three analysts watching the company. With the industry predicted to deliver 10% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Cegedim's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

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.

As expected, our analysis of Cegedim's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Cegedim you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.