Brookdale Senior Living Inc.'s (NYSE:BKD) price-to-sales (or "P/S") ratio of 0.4x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Healthcare industry in the United States have P/S ratios greater than 1x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Brookdale Senior Living

What Does Brookdale Senior Living's Recent Performance Look Like?

Brookdale Senior Living could be doing better as it's been growing revenue less than most other companies lately. 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.

How Is Brookdale Senior Living's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Brookdale Senior Living's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 8.4%. However, this wasn't enough as the latest three year period has seen an unpleasant 6.0% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 5.1% as estimated by the dual analysts watching the company. That's shaping up to be materially lower than the 7.6% growth forecast for the broader industry.

In light of this, it's understandable that Brookdale Senior Living's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

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 we suspected, our examination of Brookdale Senior Living's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Brookdale Senior Living that you should be aware of.

If these risks are making you reconsider your opinion on Brookdale Senior Living, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.