When close to half the companies in the Healthcare industry in the United States have price-to-sales ratios (or "P/S") below 1.1x, you may consider LifeStance Health Group, Inc. (NASDAQ:LFST) as a stock to potentially avoid with its 2.4x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for LifeStance Health Group
NasdaqGS:LFST Price to Sales Ratio vs Industry December 6th 2023
What Does LifeStance Health Group's P/S Mean For Shareholders?
Recent times have been advantageous for LifeStance Health Group as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.
Want the full picture on analyst estimates for the company? Then our free report on LifeStance Health Group will help you uncover what's on the horizon.
Do Revenue Forecasts Match The High P/S Ratio?
LifeStance Health Group's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 22%. Pleasingly, revenue has also lifted 166% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to climb by 16% during the coming year according to the seven analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 7.3%, which is noticeably less attractive.
In light of this, it's understandable that LifeStance Health Group's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
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.
Our look into LifeStance Health Group shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
We don't want to rain on the parade too much, but we did also find 1 warning sign for LifeStance Health Group that you need to be mindful of.
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.