Benign Growth For DocGo Inc. (NASDAQ:DCGO) Underpins Its Share Price

When close to half the companies operating in the Healthcare industry in the United States have price-to-sales ratios (or "P/S") above 1.4x, you may consider DocGo Inc. (NASDAQ:DCGO) as an attractive investment with its 0.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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Check out our latest analysis for DocGo

How DocGo Has Been Performing

DocGo could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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How Is DocGo's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like DocGo's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 41% decrease to the company's top line. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 27% as estimated by the seven analysts watching the company. That's not great when the rest of the industry is expected to grow by 8.7%.

With this information, we are not surprised that DocGo is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

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

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.

It's clear to see that DocGo maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for DocGo with six simple checks on some of these key factors.

If these risks are making you reconsider your opinion on DocGo, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.