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Some Confidence Is Lacking In RadNet, Inc.'s (NASDAQ:RDNT) P/S
When close to half the companies in the Healthcare industry in the United States have price-to-sales ratios (or "P/S") below 1x, you may consider RadNet, Inc. (NASDAQ:RDNT) as a stock to potentially avoid with its 2.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.
Check out our latest analysis for RadNet
How Has RadNet Performed Recently?
Recent revenue growth for RadNet has been in line with the industry. It might be that many expect the mediocre revenue performance to strengthen positively, which has kept the P/S ratio from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on RadNet.What Are Revenue Growth Metrics Telling Us About The High P/S?
There's an inherent assumption that a company should outperform the industry for P/S ratios like RadNet's to be considered reasonable.
If we review the last year of revenue growth, the company posted a worthy increase of 13%. Pleasingly, revenue has also lifted 39% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Turning to the outlook, the next year should generate growth of 7.0% as estimated by the six analysts watching the company. That's shaping up to be similar to the 7.9% growth forecast for the broader industry.
With this in consideration, we find it intriguing that RadNet's P/S is higher than its industry peers. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.
The Bottom Line On RadNet's P/S
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.
Seeing as its revenues are forecast to grow in line with the wider industry, it would appear that RadNet currently trades on a higher than expected P/S. The fact that the revenue figures aren't setting the world alight has us doubtful that the company's elevated P/S can be sustainable for the long term. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.
There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for RadNet that you should be aware of.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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.
About NasdaqGM:RDNT
RadNet
Provides outpatient diagnostic imaging services in the United States and internationally.
Adequate balance sheet and fair value.
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