Apollo Hospitals Enterprise Limited's (NSE:APOLLOHOSP) Share Price Not Quite Adding Up

When you see that almost half of the companies in the Healthcare industry in India have price-to-sales ratios (or "P/S") below 3.5x, Apollo Hospitals Enterprise Limited (NSE:APOLLOHOSP) looks to be giving off some sell signals with its 5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Apollo Hospitals Enterprise

What Does Apollo Hospitals Enterprise's P/S Mean For Shareholders?

Recent revenue growth for Apollo Hospitals Enterprise has been in line with the industry. It might be that many expect the mediocre revenue performance to strengthen positively, which has kept the P/S ratio from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Do Revenue Forecasts Match The High P/S Ratio?

Apollo Hospitals Enterprise's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered an exceptional 17% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 66% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 16% each year as estimated by the analysts watching the company. With the industry predicted to deliver 20% growth per year, the company is positioned for a weaker revenue result.

With this information, we find it concerning that Apollo Hospitals Enterprise is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Apollo Hospitals Enterprise's P/S?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It comes as a surprise to see Apollo Hospitals Enterprise trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 1 warning sign for Apollo Hospitals Enterprise that you need to take into consideration.

If you're unsure about the strength of Apollo Hospitals Enterprise'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.