eHealth, Inc. (NASDAQ:EHTH) Held Back By Insufficient Growth Even After Shares Climb 34%

Despite an already strong run, eHealth, Inc. (NASDAQ:EHTH) shares have been powering on, with a gain of 34% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 5.6% isn't as impressive.

In spite of the firm bounce in price, 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 0.3x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

View our latest analysis for eHealth

What Does eHealth's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, eHealth has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If you 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 eHealth will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For eHealth?

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

Retrospectively, the last year delivered an exceptional 16% gain to the company's top line. As a result, it also grew revenue by 18% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 1.7% during the coming year according to the five analysts following the company. With the industry predicted to deliver 4.3% growth, the company is positioned for a weaker revenue result.

In light of this, it's understandable that eHealth's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

The latest share price surge wasn't enough to lift eHealth's P/S close to the industry median. 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.

We've established that eHealth 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. The company will need a change of fortune to justify the P/S rising higher in the future.

It is also worth noting that we have found 3 warning signs for eHealth (2 can't be ignored!) that you need to take into consideration.

If these risks are making you reconsider your opinion on eHealth, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.