Getting In Cheap On Nordhealth AS (OB:NORDH) Might Be Difficult

Nordhealth AS' (OB:NORDH) price-to-sales (or "P/S") ratio of 4.5x may not look like an appealing investment opportunity when you consider close to half the companies in the Healthcare Services industry in Norway have P/S ratios below 3x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Nordhealth

How Has Nordhealth Performed Recently?

Nordhealth could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Nordhealth's Revenue Growth Trending?

In order to justify its P/S ratio, Nordhealth would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 53%. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 18% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 9.5%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Nordhealth's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Nordhealth's P/S Mean For Investors?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Nordhealth's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you take the next step, you should know about the 3 warning signs for Nordhealth (1 is a bit concerning!) that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.