DarioHealth Corp. (NASDAQ:DRIO) Stock's 42% Dive Might Signal An Opportunity But It Requires Some Scrutiny

To the annoyance of some shareholders, DarioHealth Corp. (NASDAQ:DRIO) shares are down a considerable 42% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 67% loss during that time.

After such a large drop in price, DarioHealth may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.6x, since almost half of all companies in the Healthcare Services industry in the United States have P/S ratios greater than 3x and even P/S higher than 14x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for DarioHealth

What Does DarioHealth's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, DarioHealth has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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Is There Any Revenue Growth Forecasted For DarioHealth?

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

Retrospectively, the last year delivered an exceptional 42% gain to the company's top line. Still, revenue has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 18% each year as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 12% per annum, which is noticeably less attractive.

With this in consideration, we find it intriguing that DarioHealth's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

Shares in DarioHealth have plummeted and its P/S has followed suit. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

A look at DarioHealth's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 5 warning signs for DarioHealth (2 can't be ignored) you should be aware of.

If these risks are making you reconsider your opinion on DarioHealth, 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.