Sentiment Still Eluding InnovAge Holding Corp. (NASDAQ:INNV)

It's not a stretch to say that InnovAge Holding Corp.'s (NASDAQ:INNV) price-to-sales (or "P/S") ratio of 0.8x right now seems quite "middle-of-the-road" for companies in the Healthcare industry in the United States, where the median P/S ratio is around 1.2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for InnovAge Holding

How Has InnovAge Holding Performed Recently?

InnovAge Holding could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

Is There Some Revenue Growth Forecasted For InnovAge Holding?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 4.6% last year. The solid recent performance means it was also able to grow revenue by 19% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 11% over the next year. That's shaping up to be materially higher than the 7.5% growth forecast for the broader industry.

With this information, we find it interesting that InnovAge Holding is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On InnovAge Holding's P/S

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.

We've established that InnovAge Holding currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for InnovAge Holding with six simple checks will allow you to discover any risks that could be an issue.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.