Investors Aren't Buying Aveanna Healthcare Holdings Inc.'s (NASDAQ:AVAH) Revenues

When you see that almost half of the companies in the Healthcare industry in the United States have price-to-sales ratios (or "P/S") above 1.2x, Aveanna Healthcare Holdings Inc. (NASDAQ:AVAH) looks to be giving off some buy signals with its 0.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Aveanna Healthcare Holdings

What Does Aveanna Healthcare Holdings' Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Aveanna Healthcare Holdings has been relatively sluggish. 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.

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

How Is Aveanna Healthcare Holdings' Revenue Growth Trending?

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 6.0% last year. Revenue has also lifted 27% 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.

Looking ahead now, revenue is anticipated to climb by 4.8% each year during the coming three years according to the eight analysts following the company. With the industry predicted to deliver 7.7% growth per year, the company is positioned for a weaker revenue result.

With this information, we can see why Aveanna Healthcare Holdings is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about this 1 warning sign we've spotted with Aveanna Healthcare Holdings.

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.

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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.