Heritage Insurance Holdings, Inc. (NYSE:HRTG) shares have had a really impressive month, gaining 54% after a shaky period beforehand.    The last month tops off a massive increase of 167% in the last year.  

Although its price has surged higher, it would still be understandable if you think Heritage Insurance Holdings is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.4x, considering almost half the companies in the United States' Insurance industry have P/S ratios above 1.1x.   Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.  

NYSE:HRTG Price to Sales Ratio vs Industry March 13th 2024

How Heritage Insurance Holdings Has Been Performing

The revenue growth achieved at Heritage Insurance Holdings over the last year would be more than acceptable for most companies.   One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future.  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.    

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Heritage Insurance Holdings will help you shine a light on its historical performance.  

Do Revenue Forecasts Match The Low P/S Ratio?  

Heritage Insurance Holdings' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.  

Taking a look back first, we see that the company managed to grow revenues by a handy 10% last year.   The latest three year period has also seen a 22% overall rise in revenue, aided somewhat by its short-term performance.  So we can start by confirming that the company has actually done a good job of growing revenue over that time.  

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 6.9% shows it's about the same on an annualised basis.

With this in consideration, we find it intriguing that Heritage Insurance Holdings' P/S falls short of its industry peers.  Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.  

The Final Word

Despite Heritage Insurance Holdings' share price climbing recently, its P/S still lags most other companies.      Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Heritage Insurance Holdings revealed its three-year revenue trends looking similar to current industry expectations hasn't given the P/S the boost we expected, given that it's lower than the wider industry P/S,  When we see industry-like revenue growth but a lower than expected P/S, we assume potential risks are what might be placing downward pressure on the share price.  It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.    

Before you take the next step, you should know about the 2 warning signs for Heritage Insurance Holdings (1 can't be ignored!) that we have uncovered.  

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.