Lacklustre Performance Is Driving Induction Healthcare Group PLC's (LON:INHC) 29% Price Drop

The Induction Healthcare Group PLC (LON:INHC) share price has fared very poorly over the last month, falling by a substantial 29%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 63% loss during that time.

Since its price has dipped substantially, Induction Healthcare Group's price-to-sales (or "P/S") ratio of 0.4x might make it look like a buy right now compared to the Healthcare Services industry in the United Kingdom, where around half of the companies have P/S ratios above 1.5x and even P/S above 4x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Induction Healthcare Group

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

There hasn't been much to differentiate Induction Healthcare Group's and the industry's revenue growth lately. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

Keen to find out how analysts think Induction Healthcare Group's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Induction Healthcare Group'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 8.1%. This was backed up an excellent period prior to see revenue up by 138% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 5.6% as estimated by the one analyst watching the company. That's shaping up to be materially lower than the 9.5% growth forecast for the broader industry.

In light of this, it's understandable that Induction Healthcare Group's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Induction Healthcare Group's P/S

Induction Healthcare Group's P/S has taken a dip along with its share price. 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.

As expected, our analysis of Induction Healthcare Group's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

Plus, you should also learn about these 2 warning signs we've spotted with Induction Healthcare Group.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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

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.