Risks Still Elevated At These Prices As 23andMe Holding Co. (NASDAQ:ME) Shares Dive 26%

Unfortunately for some shareholders, the 23andMe Holding Co. (NASDAQ:ME) share price has dived 26% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 79% share price decline.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about 23andMe Holding's P/S ratio of 1.1x, since the median price-to-sales (or "P/S") ratio for the Healthcare industry in the United States is also close to 0.9x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for 23andMe Holding

How 23andMe Holding Has Been Performing

23andMe Holding hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on 23andMe Holding will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For 23andMe Holding?

The only time you'd be comfortable seeing a P/S like 23andMe Holding's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 19% 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. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to climb by 2.1% during the coming year according to the two analysts following the company. With the industry predicted to deliver 8.2% growth, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that 23andMe Holding's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What Does 23andMe Holding's P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for 23andMe Holding looks to be in line with the rest of the Healthcare industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

When you consider that 23andMe Holding's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It is also worth noting that we have found 3 warning signs for 23andMe Holding (1 is potentially serious!) that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.