Not Many Are Piling Into American Well Corporation (NYSE:AMWL) Stock Yet As It Plummets 27%

Unfortunately for some shareholders, the American Well Corporation (NYSE:AMWL) share price has dived 27% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 67% loss during that time.

Following the heavy fall in price, American Well's price-to-sales (or "P/S") ratio of 0.9x might make it look like a buy right now compared to the Healthcare Services industry in the United States, where around half of the companies have P/S ratios above 2.2x and even P/S above 5x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for American Well

How Has American Well Performed Recently?

While the industry has experienced revenue growth lately, American Well's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, American Well would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 6.5% decrease to the company's top line. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 5.6% in total. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Looking ahead now, revenue is anticipated to climb by 12% per annum during the coming three years according to the twelve analysts following the company. With the industry predicted to deliver 13% growth each year, the company is positioned for a comparable revenue result.

In light of this, it's peculiar that American Well's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On American Well's P/S

The southerly movements of American Well's shares means its P/S is now sitting at a pretty low level. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

It looks to us like the P/S figures for American Well remain low despite growth that is expected to be in line with other companies in the industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Plus, you should also learn about these 4 warning signs we've spotted with American Well.

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.