MultiPlan Corporation (NYSE:MPLN) Shares Fly 55% But Investors Aren't Buying For Growth

MultiPlan Corporation (NYSE:MPLN) shareholders are no doubt pleased to see that the share price has bounced 55% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 81% share price decline over the last year.

Even after such a large jump in price, MultiPlan may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Healthcare Services industry in the United States have P/S ratios greater than 2.1x and even P/S higher than 5x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for MultiPlan

How MultiPlan Has Been Performing

MultiPlan hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Keen to find out how analysts think MultiPlan's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Revenue Growth Forecasted For MultiPlan?

MultiPlan's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 1.2% decrease to the company's top line. As a result, revenue from three years ago have also fallen 5.5% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 1.5% as estimated by the two analysts watching the company. With the industry predicted to deliver 9.1% growth, that's a disappointing outcome.

In light of this, it's understandable that MultiPlan's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From MultiPlan's P/S?

Despite MultiPlan'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.

It's clear to see that MultiPlan maintains its low P/S on the weakness of its forecast for sliding revenue, 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.

Having said that, be aware MultiPlan is showing 2 warning signs in our investment analysis, and 1 of those can't be ignored.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.