You may think that with a price-to-sales (or "P/S") ratio of 0.7x Teladoc Health, Inc. (NYSE:TDOC) is a stock worth checking out, seeing as almost half of all the Healthcare Services companies in the United States have P/S ratios greater than 2.3x and even P/S higher than 5x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for Teladoc Health
What Does Teladoc Health's Recent Performance Look Like?
With revenue growth that's inferior to most other companies of late, Teladoc Health has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and 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 Teladoc Health will help you uncover what's on the horizon.
Do Revenue Forecasts Match The Low P/S Ratio?
Teladoc Health'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 worthy increase of 6.0%. This was backed up an excellent period prior to see revenue up by 92% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.
Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 3.4% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 12% per year, which is noticeably more attractive.
With this information, we can see why Teladoc Health is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
What Does Teladoc Health's P/S Mean For Investors?
It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
As expected, our analysis of Teladoc Health's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor 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. It's hard to see the share price rising strongly in the near future under these circ*mstances.
Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Teladoc Health that you should be aware 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).
Valuation is complex, but we're here to simplify it.
Discover if Teladoc Health might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.
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