Talkspace, Inc.'s (NASDAQ:TALK) 30% Cheaper Price Remains In Tune With Revenues

Talkspace, Inc. (NASDAQ:TALK) shares have had a horrible month, losing 30% after a relatively good period beforehand. The recent drop has obliterated the annual return, with the share price now down 7.2% over that longer period.

In spite of the heavy fall in price, you could still be forgiven for thinking Talkspace is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.4x, considering almost half the companies in the United States' Healthcare industry have P/S ratios below 1.1x. 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.

View our latest analysis for Talkspace

How Has Talkspace Performed Recently?

Talkspace certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Talkspace will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Talkspace would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 25%. The strong recent performance means it was also able to grow revenue by 65% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 22% per year during the coming three years according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 8.3% each year, which is noticeably less attractive.

With this information, we can see why Talkspace is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Talkspace's P/S?

There's still some elevation in Talkspace's P/S, even if the same can't be said for its share price recently. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look into Talkspace shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Talkspace with six simple checks.

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.