Brookdale Senior Living Inc.'s (NYSE:BKD) 27% Share Price Surge Not Quite Adding Up

Despite an already strong run, Brookdale Senior Living Inc. (NYSE:BKD) shares have been powering on, with a gain of 27% in the last thirty days. The last month tops off a massive increase of 102% in the last year.

Even after such a large jump in price, it's still not a stretch to say that Brookdale Senior Living's price-to-sales (or "P/S") ratio of 0.9x right now seems quite "middle-of-the-road" compared to the Healthcare industry in the United States, where the median P/S ratio is around 1.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Check out our latest analysis for Brookdale Senior Living

How Brookdale Senior Living Has Been Performing

With revenue growth that's inferior to most other companies of late, Brookdale Senior Living has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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How Is Brookdale Senior Living's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Brookdale Senior Living's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 4.3% last year. The latest three year period has also seen a 21% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to slump, contracting by 0.4% during the coming year according to the three analysts following the company. With the industry predicted to deliver 6.4% growth, that's a disappointing outcome.

With this in consideration, we think it doesn't make sense that Brookdale Senior Living's P/S is closely matching its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

The Key Takeaway

Brookdale Senior Living's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of 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.

Our check of Brookdale Senior Living's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.

You should always think about risks. Case in point, we've spotted 4 warning signs for Brookdale Senior Living you should be aware of.

If these risks are making you reconsider your opinion on Brookdale Senior Living, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.