Heritage Insurance Holdings, Inc. (NYSE:HRTG) shares have had a really impressive month, gaining 51% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 97% in the last year.

Even after such a large jump in price, given about half the companies operating in the United States' Insurance industry have price-to-sales ratios (or "P/S") above 1x, you may still consider Heritage Insurance Holdings as an attractive investment with its 0.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does Heritage Insurance Holdings' Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Heritage Insurance Holdings has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. 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.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

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

If we review the last year of revenue growth, the company posted a worthy increase of 9.4%. Revenue has also lifted 23% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 11% during the coming year according to the three analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 4.8%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Heritage Insurance Holdings' P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

Despite Heritage Insurance Holdings' share price climbing recently, its P/S still lags most other 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.

Heritage Insurance Holdings' analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

You always need to take note of risks, for example - Heritage Insurance Holdings has 2 warning signs we think you should be aware of.

If you're unsure about the strength of Heritage Insurance Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.