Price is good for Oneview Healthcare PLC (ASX:ONE), even after dipping 26%

Oneview Healthcare PLC (ASX:ONE) shares have had a terrible month, losing 26% after a relatively good period prior. The good news is that the stock has shined bright like a diamond over the past year, with a gain of 108%.

Even after such a large price drop, Oneview Healthcare can still send very bearish signals at this point with a price-to-sales ratio (or “P/S”) of 11.4x, as almost half of all healthcare companies in the services sector Australia has price-to-earnings ratios of less than 6.3x and even a price-to-earnings ratio of less than 1.9x is not unusual. Nevertheless, we need to dig a little deeper to determine whether there is a rational basis for the very high P/S.

Check out our latest analysis for Oneview Healthcare

ASX:ONE Price to Sales Ratio vs. Industry May 2, 2024

How has Oneview Healthcare performed recently?

Recent times haven’t been great for Oneview Healthcare, as revenue has grown more slowly than most other companies. It may be that many expect the uninspiring revenue performance to rebound significantly, meaning the price/earnings ratio has not collapsed. However, if this is not the case, investors can be caught paying too much for the shares.

Want to get the full picture of analyst estimates for the company? Then our free report on Oneview Healthcare will help you discover what’s on the horizon.

Is sufficient revenue growth expected for Oneview Healthcare?

There is an inherent assumption that a company must far outperform the industry for P/S ratios like Oneview Healthcare’s to be considered reasonable.

Looking back first, we see that the company managed to grow revenue by a handy 5.3% last year. The last three years have also seen excellent overall revenue growth of 32%, helped somewhat by near-term performance. Therefore, it’s fair to say that revenue growth has been fantastic for the company recently.

Looking ahead now, sales are expected to grow 52% annually over the next three years, according to the two analysts who track the company. Meanwhile, the rest of the sector is expected to grow at just 23% per year, which is noticeably less attractive.

With this information, we can see why Oneview Healthcare is trading at such a high P/S compared to the industry. It seems most investors expect this strong future growth and are willing to pay more for the stock.

The last word

Even after such a steep price drop, Oneview Healthcare’s price-to-earnings ratio still significantly exceeds the industry median. We would say that the price-to-sales ratio is not primarily a valuation tool, but rather a tool to gauge current investor sentiment and future expectations.

We found Oneview Healthcare to maintain its high P/S on the basis that its forecast revenue growth is higher than the rest of the healthcare sector, as expected. At this stage, investors believe that the likelihood of a deterioration in earnings is quite low, which justifies the higher price-to-earnings ratio. It’s hard to see the share price falling sharply in the near future under these conditions.

Before you settle for your opinion, we found out 1 warning sign for Oneview Healthcare that you should be aware of.

Naturally, profitable companies with a history of high profit growth tend to be safer. So you might want to see this free collection of other companies that have reasonable price-to-earnings ratios and have grown profits strongly.

Valuation is complex, but we help make it simple.

Find out if Oneview Healthcare may be over or undervalued by viewing our comprehensive analysis, including: fair value estimates, risks and cautions, dividends, insider transactions and financial health.

View the Free Analysis

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.