Alignment Healthcare, Inc.'s (NASDAQ:ALHC) price-to-sales (or "P/S") ratio of 0.8x 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 1.3x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does Alignment Healthcare's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Alignment Healthcare has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Is There Any Revenue Growth Forecasted For Alignment Healthcare?

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

Taking a look back first, we see that the company grew revenue by an impressive 37% last year. The strong recent performance means it was also able to grow revenue by 109% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 25% each year as estimated by the ten analysts watching the company. With the industry only predicted to deliver 7.5% per annum, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that Alignment Healthcare's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Alignment Healthcare's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. 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 should always think about risks. Case in point, we've spotted 2 warning signs for Alignment Healthcare you should be aware of.

If you're unsure about the strength of Alignment Healthcare's 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.