Despite an already strong run, Clover Health Investments, Corp. (NASDAQ:CLOV) shares have been powering on, with a gain of 108% in the last thirty days. The annual gain comes to 169% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, it's still not a stretch to say that Clover Health Investments' price-to-sales (or "P/S") ratio of 0.8x right now seems quite "middle-of-the-road" compared to the Healthcare industry in the United States, where the median P/S ratio is around 1.2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

What Does Clover Health Investments' P/S Mean For Shareholders?

Clover Health Investments hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is Clover Health Investments' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Clover Health Investments' to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 14%. Even so, admirably revenue has lifted 127% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue growth is heading into negative territory, declining 8.3% per year over the next three years. With the industry predicted to deliver 7.5% growth per annum, that's a disappointing outcome.

With this in consideration, we think it doesn't make sense that Clover Health Investments' P/S is closely matching its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

What Does Clover Health Investments' P/S Mean For Investors?

Clover Health Investments' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our check of Clover Health Investments' analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.

You should always think about risks. Case in point, we've spotted 3 warning signs for Clover Health Investments you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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