Surgery Partners, Inc.'s (NASDAQ:SGRY) Shareholders Might Be Looking For Exit

When close to half the companies in the Healthcare industry in the United States have price-to-sales ratios (or "P/S") below 1.2x, you may consider Surgery Partners, Inc. (NASDAQ:SGRY) as a stock to potentially avoid with its 2x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Surgery Partners

What Does Surgery Partners' Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Surgery Partners has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Surgery Partners.

How Is Surgery Partners' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Surgery Partners' is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered a decent 13% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 41% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 9.8% per annum during the coming three years according to the ten analysts following the company. With the industry predicted to deliver 8.6% growth each year, the company is positioned for a comparable revenue result.

In light of this, it's curious that Surgery Partners' P/S sits above the majority of other companies. 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 Key Takeaway

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Analysts are forecasting Surgery Partners' revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. 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. A positive change is needed in order to justify the current price-to-sales ratio.

Before you settle on your opinion, we've discovered 2 warning signs for Surgery Partners 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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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.