Aveanna Healthcare Holdings Inc.'s (NASDAQ:AVAH) Price Is Right But Growth Is Lacking After Shares Rocket 25%

Aveanna Healthcare Holdings Inc. (NASDAQ:AVAH) shares have had a really impressive month, gaining 25% after a shaky period beforehand. The last month tops off a massive increase of 268% in the last year.

In spite of the firm bounce in price, considering around half the companies operating in the United States' Healthcare industry have price-to-sales ratios (or "P/S") above 1.1x, you may still consider Aveanna Healthcare Holdings as an solid investment opportunity with its 0.6x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Aveanna Healthcare Holdings

How Has Aveanna Healthcare Holdings Performed Recently?

Aveanna Healthcare Holdings could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Aveanna Healthcare Holdings' is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 6.6% last year. Revenue has also lifted 19% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 4.7% over the next year. That's shaping up to be materially lower than the 7.4% growth forecast for the broader industry.

In light of this, it's understandable that Aveanna Healthcare Holdings' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Despite Aveanna Healthcare Holdings' share price climbing recently, its P/S still lags most other companies. 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 Aveanna Healthcare Holdings' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Aveanna Healthcare Holdings (1 makes us a bit uncomfortable) you should be aware of.

If you're unsure about the strength of Aveanna Healthcare Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.