Suzhou MedicalSystem Technology Co., Ltd.'s (SHSE:603990) Shares Leap 30% Yet They're Still Not Telling The Full Story

Suzhou MedicalSystem Technology Co., Ltd. (SHSE:603990) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 27% over that time.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Suzhou MedicalSystem Technology's P/S ratio of 7.4x, since the median price-to-sales (or "P/S") ratio for the Healthcare Services industry in China is also close to 7.8x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Suzhou MedicalSystem Technology

How Suzhou MedicalSystem Technology Has Been Performing

Suzhou MedicalSystem Technology certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Suzhou MedicalSystem Technology.

Do Revenue Forecasts Match The P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 32% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 39% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 603% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 39%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Suzhou MedicalSystem Technology's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

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

Its shares have lifted substantially and now Suzhou MedicalSystem Technology's P/S is back within range of the industry median. 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.

We've established that Suzhou MedicalSystem Technology currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Suzhou MedicalSystem Technology with six simple checks on some of these key factors.

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.