Slammed 28% Inspiration Healthcare Group plc (LON:IHC) Screens Well Here But There Might Be A Catch

Inspiration Healthcare Group plc (LON:IHC) shares have had a horrible month, losing 28% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 55% loss during that time.

After such a large drop in price, Inspiration Healthcare Group may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.4x, considering almost half of all companies in the Medical Equipment industry in the United Kingdom have P/S ratios greater than 3.2x and even P/S higher than 8x 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.

Check out our latest analysis for Inspiration Healthcare Group

What Does Inspiration Healthcare Group's P/S Mean For Shareholders?

Inspiration Healthcare Group hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Inspiration Healthcare Group.

Is There Any Revenue Growth Forecasted For Inspiration Healthcare Group?

Inspiration Healthcare Group's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 17%. As a result, revenue from three years ago have also fallen 21% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 27% as estimated by the only analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 10%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Inspiration Healthcare Group's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Shares in Inspiration Healthcare Group have plummeted and its P/S has followed suit. 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.

To us, it seems Inspiration Healthcare Group currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Inspiration Healthcare Group (2 make us uncomfortable!) that you need to be mindful of.

If you're unsure about the strength of Inspiration Healthcare Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.