Alignment Healthcare, Inc. (NASDAQ:ALHC) Soars 26% But It's A Story Of Risk Vs Reward

Despite an already strong run, Alignment Healthcare, Inc. (NASDAQ:ALHC) shares have been powering on, with a gain of 26% in the last thirty days. The last month tops off a massive increase of 259% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Alignment Healthcare's P/S ratio of 1.2x, since the median price-to-sales (or "P/S") ratio for the Healthcare industry in the United States is also close to 1.1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Alignment Healthcare

What Does Alignment Healthcare's Recent Performance Look Like?

Alignment Healthcare certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

Is There Some Revenue Growth Forecasted For Alignment Healthcare?

In order to justify its P/S ratio, Alignment Healthcare would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 48% gain to the company's top line. Pleasingly, revenue has also lifted 132% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the twelve analysts covering the company suggest revenue should grow by 29% per annum over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 8.3% each year, which is noticeably less attractive.

With this information, we find it interesting that Alignment Healthcare is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Alignment Healthcare's P/S

Alignment Healthcare appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Looking at Alignment Healthcare's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

You always need to take note of risks, for example - Alignment Healthcare has 2 warning signs we think you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.