You may think that with a price-to-sales (or "P/S") ratio of 0.3x AdaptHealth Corp. (NASDAQ:AHCO) is a stock worth checking out, seeing as almost half of all the Healthcare companies in the United States have P/S ratios greater than 1x and even P/S higher than 3x aren't out of the ordinary.   Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.  

Check out our latest analysis for AdaptHealth

NasdaqCM:AHCO Price to Sales Ratio vs Industry January 18th 2024

How AdaptHealth Has Been Performing

AdaptHealth could be doing better as it's been growing revenue less than most other companies lately.   The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better.  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 AdaptHealth will help you uncover what's on the horizon.  

Do Revenue Forecasts Match The Low P/S Ratio?  

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

If we review the last year of revenue growth, the company posted a worthy increase of 7.6%.   The latest three year period has also seen an excellent 264% overall rise in revenue, aided somewhat by its short-term performance.  So we can start by confirming that the company has done a great job of growing revenues over that time.  

Turning to the outlook, the next three years should generate growth of 11%  per annum as estimated by the ten analysts watching the company.  Meanwhile, the rest of the industry is forecast to only expand by 7.3% each year, which is noticeably less attractive.

With this information, we find it odd that AdaptHealth is trading at a P/S lower than the industry.  Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.  

The Key Takeaway

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

A look at AdaptHealth's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect.  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.    

It is also worth noting that we have found 1 warning sign for AdaptHealth that you need to take into consideration.  

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

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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.