Health Catalyst, Inc.'s (NASDAQ:HCAT) Shares Lagging The Industry But So Is The Business

With a price-to-sales (or "P/S") ratio of 1.5x Health Catalyst, Inc. (NASDAQ:HCAT) may be sending bullish signals at the moment, given that almost half of all the Healthcare Services companies in the United States have P/S ratios greater than 2.3x and even P/S higher than 5x are not unusual. 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 Health Catalyst

What Does Health Catalyst's Recent Performance Look Like?

Health Catalyst 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 you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Keen to find out how analysts think Health Catalyst's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Health Catalyst's Revenue Growth Trending?

In order to justify its P/S ratio, Health Catalyst would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 5.2%. The latest three year period has also seen an excellent 49% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 6.7% over the next year. Meanwhile, the rest of the industry is forecast to expand by 9.7%, which is noticeably more attractive.

In light of this, it's understandable that Health Catalyst's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As expected, our analysis of Health Catalyst's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Health Catalyst that you need to be mindful of.

If you're unsure about the strength of Health Catalyst's 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.

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