U.S. Physical Therapy, Inc.'s (NYSE:USPH) Business Is Trailing The Industry But Its Shares Aren't

When you see that almost half of the companies in the Healthcare industry in the United States have price-to-sales ratios (or "P/S") below 1.2x, U.S. Physical Therapy, Inc. (NYSE:USPH) looks to be giving off some sell signals with its 2.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for U.S. Physical Therapy

What Does U.S. Physical Therapy's Recent Performance Look Like?

U.S. Physical Therapy could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on U.S. Physical Therapy will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should outperform the industry for P/S ratios like U.S. Physical Therapy's to be considered reasonable.

Retrospectively, the last year delivered a decent 7.4% gain to the company's revenues. The latest three year period has also seen an excellent 45% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 8.5% during the coming year according to the six analysts following the company. With the industry predicted to deliver 7.4% growth , the company is positioned for a comparable revenue result.

With this information, we find it interesting that U.S. Physical Therapy is trading at a high P/S compared to the industry. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

The Bottom Line On U.S. Physical Therapy's P/S

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.

Seeing as its revenues are forecast to grow in line with the wider industry, it would appear that U.S. Physical Therapy currently trades on a higher than expected P/S. Right now we are uncomfortable with the relatively high share price as the predicted future revenues aren't likely to support such positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

Having said that, be aware U.S. Physical Therapy is showing 5 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on U.S. Physical Therapy, 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.