Cautious Investors Not Rewarding Optima Health plc's (LON:OPT) Performance Completely

You may think that with a price-to-sales (or "P/S") ratio of 1.6x Optima Health plc (LON:OPT) is a stock worth checking out, seeing as almost half of all the Healthcare Services companies in the United Kingdom have P/S ratios greater than 2.2x and even P/S higher than 5x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Optima Health

What Does Optima Health's P/S Mean For Shareholders?

Optima Health could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. 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.

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

How Is Optima Health's Revenue Growth Trending?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 5.3%. The latest three year period has seen an incredible overall rise in revenue, a stark contrast to the last 12 months. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.

Turning to the outlook, the next three years should generate growth of 13% per year as estimated by the dual analysts watching the company. With the industry predicted to deliver 13% growth per year, the company is positioned for a comparable revenue result.

In light of this, it's peculiar that Optima Health's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On Optima Health's P/S

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.

It looks to us like the P/S figures for Optima Health remain low despite growth that is expected to be in line with other companies in the industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Optima Health that you should be aware of.

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.