Insufficient Growth At Evolent Health, Inc. (NYSE:EVH) Hampers Share Price

With a price-to-sales (or "P/S") ratio of 0.4x Evolent Health, Inc. (NYSE:EVH) may be sending very bullish signals at the moment, given that almost half of all the Healthcare Services companies in the United States have P/S ratios greater than 3.2x and even P/S higher than 17x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

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See our latest analysis for Evolent Health

How Has Evolent Health Performed Recently?

While the industry has experienced revenue growth lately, Evolent Health'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. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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Is There Any Revenue Growth Forecasted For Evolent Health?

The only time you'd be truly comfortable seeing a P/S as depressed as Evolent Health's is when the company's growth is on track to lag the industry decidedly.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 6.7%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 102% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 10% per year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 12% per annum growth forecast for the broader industry.

With this information, we can see why Evolent Health is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Evolent Health's P/S?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Evolent Health's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with Evolent Health.

If these risks are making you reconsider your opinion on Evolent Health, 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.