eHealth, Inc.'s (NASDAQ:EHTH) 26% Dip In Price Shows Sentiment Is Matching Revenues

Unfortunately for some shareholders, the eHealth, Inc. (NASDAQ:EHTH) share price has dived 26% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 15% share price drop.

After such a large drop in price, it would be understandable if you think eHealth is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.2x, considering almost half the companies in the United States' Insurance industry have P/S ratios above 1.1x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

We've discovered 2 warning signs about eHealth. View them for free.

Check out our latest analysis for eHealth

What Does eHealth's Recent Performance Look Like?

Recent times have been advantageous for eHealth as its revenues have been rising faster than most other companies. 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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?

eHealth'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.

If we review the last year of revenue growth, the company posted a terrific increase of 17%. Revenue has also lifted 8.5% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 2.1% during the coming year according to the five analysts following the company. That's not great when the rest of the industry is expected to grow by 5.5%.

With this information, we are not surprised that eHealth is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

eHealth's recently weak share price has pulled its P/S back below other Insurance companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of eHealth's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

We don't want to rain on the parade too much, but we did also find 2 warning signs for eHealth that you need to be mindful of.

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.