Pediatrix Medical Group, Inc. (NYSE:MD) Shares Fly 27% But Investors Aren't Buying For Growth

Despite an already strong run, Pediatrix Medical Group, Inc. (NYSE:MD) shares have been powering on, with a gain of 27% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 55% in the last year.

Although its price has surged higher, it would still be understandable if you think Pediatrix Medical Group is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.6x, considering almost half the companies in the United States' Healthcare industry have P/S ratios above 1.2x. 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 Pediatrix Medical Group

How Pediatrix Medical Group Has Been Performing

Pediatrix Medical Group could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. 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 Pediatrix Medical Group will help you uncover what's on the horizon.

How Is Pediatrix Medical Group's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Pediatrix Medical Group's to be considered reasonable.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Still, the latest three year period was better as it's delivered a decent 9.7% overall rise in revenue. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 0.8% per annum as estimated by the seven analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 7.3% per year, which is noticeably more attractive.

With this information, we can see why Pediatrix Medical Group is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Despite Pediatrix Medical Group's share price climbing recently, its P/S still lags most other companies. 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.

We've established that Pediatrix Medical Group maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Pediatrix Medical Group that you should be aware of.

If these risks are making you reconsider your opinion on Pediatrix Medical Group, 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.