HealthCare Global Enterprises Limited's (NSE:HCG) Business Is Yet to Catch Up With Its Share Price

It's not a stretch to say that HealthCare Global Enterprises Limited's (NSE:HCG) price-to-sales (or "P/S") ratio of 2.6x right now seems quite "middle-of-the-road" for companies in the Healthcare industry in India, where the median P/S ratio is around 2.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for HealthCare Global Enterprises

How HealthCare Global Enterprises Has Been Performing

With revenue growth that's superior to most other companies of late, HealthCare Global Enterprises has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on HealthCare Global Enterprises.

How Is HealthCare Global Enterprises' Revenue Growth Trending?

HealthCare Global Enterprises' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 21%. The latest three year period has also seen an excellent 49% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 14% over the next year. That's shaping up to be materially lower than the 23% growth forecast for the broader industry.

In light of this, it's curious that HealthCare Global Enterprises' P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On HealthCare Global Enterprises' P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look at the analysts forecasts of HealthCare Global Enterprises' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

Having said that, be aware HealthCare Global Enterprises is showing 2 warning signs in our investment analysis, and 1 of those is potentially serious.

If these risks are making you reconsider your opinion on HealthCare Global Enterprises, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.