NeoGenomics, Inc.'s (NASDAQ:NEO) price-to-sales (or "P/S") ratio of 4.4x may look like a poor investment opportunity when you consider close to half the companies in the Healthcare industry in the United States have P/S ratios below 1.1x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for NeoGenomics
NasdaqCM:NEO Price to Sales Ratio vs Industry December 20th 2023
What Does NeoGenomics' Recent Performance Look Like?
Recent times have been advantageous for NeoGenomics as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.
Keen to find out how analysts think NeoGenomics' future stacks up against the industry? In that case, our free report is a great place to start.
How Is NeoGenomics' Revenue Growth Trending?
In order to justify its P/S ratio, NeoGenomics would need to produce outstanding growth that's well in excess of the industry.
Retrospectively, the last year delivered an exceptional 16% gain to the company's top line. The latest three year period has also seen an excellent 35% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.
Turning to the outlook, the next three years should generate growth of 8.9% per annum as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 7.7% per year, which is not materially different.
In light of this, it's curious that NeoGenomics' P/S sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.
What Does NeoGenomics' P/S Mean For Investors?
It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
Analysts are forecasting NeoGenomics' revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. Right now we are uncomfortable with the relatively high share price as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.
We don't want to rain on the parade too much, but we did also find 1 warning sign for NeoGenomics that you need to be mindful of.
If you're unsure about the strength of NeoGenomics' 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.