Investors Give Ontrak, Inc. (NASDAQ:OTRK) Shares A 33% Hiding

To the annoyance of some shareholders, Ontrak, Inc. (NASDAQ:OTRK) shares are down a considerable 33% 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 96% loss during that time.

Although its price has dipped substantially, it's still not a stretch to say that Ontrak's price-to-sales (or "P/S") ratio of 0.6x right now seems quite "middle-of-the-road" compared to the Healthcare industry in the United States, where the median P/S ratio is around 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Ontrak

What Does Ontrak's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Ontrak's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. 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 Ontrak will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The P/S?

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

Retrospectively, the last year delivered a frustrating 48% decrease to the company's top line. As a result, revenue from three years ago have also fallen 82% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 50% per year as estimated by the only analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 7.5% per year, which is noticeably less attractive.

In light of this, it's curious that Ontrak's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Following Ontrak's share price tumble, its P/S is just clinging on to the industry median 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.

Looking at Ontrak's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 5 warning signs for Ontrak (3 don't sit too well with us) you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.