New Journey Health Technology Group Co.,LTD (SZSE:002219) Stock Rockets 36% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, New Journey Health Technology Group Co.,LTD (SZSE:002219) shares have been powering on, with a gain of 36% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 17% in the last twelve months.

Following the firm bounce in price, you could be forgiven for thinking New Journey Health Technology GroupLTD is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.4x, considering almost half the companies in China's Healthcare industry have P/S ratios below 1.7x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for New Journey Health Technology GroupLTD

How New Journey Health Technology GroupLTD Has Been Performing

The revenue growth achieved at New Journey Health Technology GroupLTD over the last year would be more than acceptable for most companies. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. If not, then existing shareholders may be a little nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on New Journey Health Technology GroupLTD's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For New Journey Health Technology GroupLTD?

The only time you'd be truly comfortable seeing a P/S as high as New Journey Health Technology GroupLTD's is when the company's growth is on track to outshine the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 16%. As a result, it also grew revenue by 25% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 13% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's alarming that New Journey Health Technology GroupLTD's P/S sits above the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From New Journey Health Technology GroupLTD's P/S?

New Journey Health Technology GroupLTD shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

The fact that New Journey Health Technology GroupLTD currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

Having said that, be aware New Journey Health Technology GroupLTD is showing 3 warning signs in our investment analysis, and 1 of those can't be ignored.

If these risks are making you reconsider your opinion on New Journey Health Technology GroupLTD, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.