The Market Lifts Ontrak, Inc. (NASDAQ:OTRK) Shares 206% But It Can Do More

Ontrak, Inc. (NASDAQ:OTRK) shareholders would be excited to see that the share price has had a great month, posting a 206% gain and recovering from prior weakness. But the last month did very little to improve the 84% share price decline over the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Ontrak's price-to-sales (or "P/S") ratio of 1.5x is worth a mention when the median P/S in the United States' Healthcare industry is similar at about 1.1x. 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.

Check out our latest analysis for Ontrak

How Ontrak Has Been Performing

Ontrak could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. 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.

Do Revenue Forecasts Match The P/S Ratio?

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

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. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 50% per annum during the coming three years according to the lone analyst following the company. With the industry only predicted to deliver 7.9% each year, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Ontrak's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Ontrak appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Ontrak 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.

We don't want to rain on the parade too much, but we did also find 5 warning signs for Ontrak (3 are concerning!) that you need to be mindful of.

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.

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

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.