A Piece Of The Puzzle Missing From eHealth, Inc.'s (NASDAQ:EHTH) 31% Share Price Climb

The eHealth, Inc. (NASDAQ:EHTH) share price has done very well over the last month, posting an excellent gain of 31%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 25% in the last twelve months.

Although its price has surged higher, considering around half the companies operating in the United States' Insurance industry have price-to-sales ratios (or "P/S") above 1.1x, you may still consider eHealth as an solid investment opportunity with its 0.4x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for eHealth

How eHealth Has Been Performing

eHealth's revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could 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 eHealth will help you uncover what's on the horizon.

How Is eHealth's Revenue Growth Trending?

In order to justify its P/S ratio, eHealth would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 16% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 21% drop in revenue in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 9.2% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 4.2%, which is noticeably less attractive.

In light of this, it's peculiar that eHealth's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

Despite eHealth's share price climbing recently, its P/S still lags most other companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

A look at eHealth's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for eHealth you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.