Augmedix, Inc. (NASDAQ:AUGX) Shares Slammed 29% But Getting In Cheap Might Be Difficult Regardless

Unfortunately for some shareholders, the Augmedix, Inc. (NASDAQ:AUGX) share price has dived 29% in the last thirty days, prolonging recent pain. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

Although its price has dipped substantially, when almost half of the companies in the United States' Healthcare Services industry have price-to-sales ratios (or "P/S") below 2.3x, you may still consider Augmedix as a stock probably not worth researching with its 3.1x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Augmedix

What Does Augmedix's Recent Performance Look Like?

Recent times have been advantageous for Augmedix as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Augmedix will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as high as Augmedix's is when the company's growth is on track to outshine the industry.

Taking a look back first, we see that the company grew revenue by an impressive 45% last year. The latest three year period has also seen an excellent 172% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 39% per year over the next three years. That's shaping up to be materially higher than the 13% each year growth forecast for the broader industry.

With this information, we can see why Augmedix is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Augmedix's P/S remain high even after its stock plunged. 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.

As we suspected, our examination of Augmedix'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 these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Augmedix is showing 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.