The MultiPlan Corporation (NYSE:MPLN) share price has fared very poorly over the last month, falling by a substantial 31%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 86% loss during that time.

Following the heavy fall in price, considering around half the companies operating in the United States' Healthcare Services industry have price-to-sales ratios (or "P/S") above 2x, you may consider MultiPlan as an solid investment opportunity with its 0.1x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

What Does MultiPlan's Recent Performance Look Like?

MultiPlan could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Is There Any Revenue Growth Forecasted For MultiPlan?

In order to justify its P/S ratio, MultiPlan would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 1.7% decrease to the company's top line. As a result, revenue from three years ago have also fallen 12% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 0.2% as estimated by the dual analysts watching the company. With the industry predicted to deliver 9.0% growth, that's a disappointing outcome.

With this information, we are not surprised that MultiPlan is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

MultiPlan's recently weak share price has pulled its P/S back below other Healthcare Services 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.

It's clear to see that MultiPlan maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for MultiPlan (1 doesn't sit too well with us) you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.