Hippo Holdings Inc. (NYSE:HIPO) Stock's 25% Dive Might Signal An Opportunity But It Requires Some Scrutiny

Hippo Holdings Inc. (NYSE:HIPO) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. Longer-term shareholders would now have taken a real hit with the stock declining 7.5% in the last year.

Even after such a large drop in price, it's still not a stretch to say that Hippo Holdings' price-to-sales (or "P/S") ratio of 1.5x right now seems quite "middle-of-the-road" compared to the Insurance industry in the United States, where the median P/S ratio is around 1.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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Check out our latest analysis for Hippo Holdings

How Has Hippo Holdings Performed Recently?

With revenue growth that's superior to most other companies of late, Hippo Holdings has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

Is There Some Revenue Growth Forecasted For Hippo Holdings?

The only time you'd be comfortable seeing a P/S like Hippo Holdings' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 77% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 18% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 7.3% per annum, which is noticeably less attractive.

With this in consideration, we find it intriguing that Hippo Holdings' P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Hippo Holdings' P/S?

With its share price dropping off a cliff, the P/S for Hippo Holdings looks to be in line with the rest of the Insurance industry. 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.

Despite enticing revenue growth figures that outpace the industry, Hippo Holdings' P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Hippo Holdings you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.