Optimistic Investors Push Suzhou MedicalSystem Technology Co., Ltd. (SHSE:603990) Shares Up 28% But Growth Is Lacking

Suzhou MedicalSystem Technology Co., Ltd. (SHSE:603990) shares have continued their recent momentum with a 28% gain in the last month alone. Notwithstanding the latest gain, the annual share price return of 8.3% isn't as impressive.

Although its price has surged higher, there still wouldn't be many who think Suzhou MedicalSystem Technology's price-to-sales (or "P/S") ratio of 6.9x is worth a mention when the median P/S in China's Healthcare Services industry is similar at about 7.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Suzhou MedicalSystem Technology

What Does Suzhou MedicalSystem Technology's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, Suzhou MedicalSystem Technology has been doing very well. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. 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 not quite in favour.

Although there are no analyst estimates available for Suzhou MedicalSystem Technology, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Suzhou MedicalSystem Technology?

In order to justify its P/S ratio, Suzhou MedicalSystem Technology would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 40%. The strong recent performance means it was also able to grow revenue by 76% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 28% shows it's noticeably less attractive.

With this information, we find it interesting that Suzhou MedicalSystem Technology is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Bottom Line On Suzhou MedicalSystem Technology's P/S

Suzhou MedicalSystem Technology's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Suzhou MedicalSystem Technology revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

Having said that, be aware Suzhou MedicalSystem Technology is showing 1 warning sign in our investment analysis, you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.