Surgery Partners, Inc. (NASDAQ:SGRY) Soars 25% But It's A Story Of Risk Vs Reward

Surgery Partners, Inc. (NASDAQ:SGRY) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 24% in the last twelve months.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Surgery Partners' P/S ratio of 1.3x, since the median price-to-sales (or "P/S") ratio for the Healthcare industry in the United States is also close to 1.1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Surgery Partners

How Surgery Partners Has Been Performing

Recent times haven't been great for Surgery Partners as its revenue has been rising slower than most other companies. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Keen to find out how analysts think Surgery Partners' 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?

In order to justify its P/S ratio, Surgery Partners would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 7.1%. Pleasingly, revenue has also lifted 45% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the twelve analysts covering the company suggest revenue should grow by 10% each year over the next three years. That's shaping up to be materially higher than the 7.7% per year growth forecast for the broader industry.

With this in consideration, we find it intriguing that Surgery Partners' P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Surgery Partners' P/S?

Surgery Partners appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Surgery Partners currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware Surgery Partners is showing 3 warning signs in our investment analysis, and 1 of those is concerning.

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.

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