Slammed 26% Ontrak, Inc. (NASDAQ:OTRK) Screens Well Here But There Might Be A Catch

Ontrak, Inc. (NASDAQ:OTRK) shares have had a horrible month, losing 26% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 81% share price decline.

Although its price has dipped substantially, there still wouldn't be many who think Ontrak's price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S in the United States' Healthcare industry is similar at about 1.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Ontrak

How Has Ontrak Performed Recently?

With revenue growth that's superior to most other companies of late, Ontrak has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. 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 not quite in favour.

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

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 decent 14% gain to the company's revenues. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 89% in total over the last three years. 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 60% per year as estimated by the one analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 7.4% 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. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

With its share price dropping off a cliff, the P/S for Ontrak looks to be in line with the rest of the Healthcare industry. 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.

Having said that, be aware Ontrak is showing 4 warning signs in our investment analysis, and 2 of those don't sit too well with us.

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