Talkspace, Inc.'s (NASDAQ:TALK) P/S Is Still On The Mark Following 29% Share Price Bounce

Despite an already strong run, Talkspace, Inc. (NASDAQ:TALK) shares have been powering on, with a gain of 29% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 72% in the last year.

After such a large jump in price, given around half the companies in the United States' Healthcare industry have price-to-sales ratios (or "P/S") below 1.1x, you may consider Talkspace as a stock to avoid entirely with its 3.2x 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 so lofty.

View our latest analysis for Talkspace

How Talkspace Has Been Performing

Recent times have been advantageous for Talkspace as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. 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 Talkspace.

How Is Talkspace's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 31% gain to the company's top line. The latest three year period has also seen an excellent 65% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 22% per annum as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 7.2% per annum growth forecast for the broader industry.

In light of this, it's understandable that Talkspace's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Shares in Talkspace have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 Talkspace maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Healthcare industry, as expected. 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.

Having said that, be aware Talkspace is showing 1 warning sign in our investment analysis, you should know about.

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.

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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.