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Those holding Star Equity Holdings, Inc. (NASDAQ:STRR) shares would be relieved that the share price has rebounded 25% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Notwithstanding the latest gain, the annual share price return of 5.7% isn't as impressive.
Even after such a large jump in price, Star Equity Holdings may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Healthcare industry in the United States have P/S ratios greater than 1x and even P/S higher than 3x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
View our latest analysis for Star Equity Holdings
How Has Star Equity Holdings Performed Recently?
With revenue growth that's superior to most other companies of late, Star Equity Holdings has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. 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.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Star Equity Holdings.
Is There Any Revenue Growth Forecasted For Star Equity Holdings?
The only time you'd be truly comfortable seeing a P/S as low as Star Equity Holdings' is when the company's growth is on track to lag the industry.
Taking a look back first, we see that the company grew revenue by an impressive 21% last year. The strong recent performance means it was also able to grow revenue by 84% in total over the last three years. 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 year should bring diminished returns, with revenue decreasing 34% as estimated by the dual analysts watching the company. That's not great when the rest of the industry is expected to grow by 8.0%.
With this information, we are not surprised that Star Equity Holdings is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
The Key Takeaway
The latest share price surge wasn't enough to lift Star Equity Holdings' P/S close to the industry median. 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.