Dian Diagnostics Group Co.,Ltd.'s (SZSE:300244) Price Is Right But Growth Is Lacking After Shares Rocket 43%

Dian Diagnostics Group Co.,Ltd. (SZSE:300244) shares have had a really impressive month, gaining 43% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 25% over that time.

In spite of the firm bounce in price, it would still be understandable if you think Dian Diagnostics GroupLtd is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.7x, considering almost half the companies in China's Healthcare industry have P/S ratios above 1.7x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Dian Diagnostics GroupLtd

What Does Dian Diagnostics GroupLtd's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Dian Diagnostics GroupLtd's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Want the full picture on analyst estimates for the company? Then our free report on Dian Diagnostics GroupLtd will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Dian Diagnostics GroupLtd?

In order to justify its P/S ratio, Dian Diagnostics GroupLtd would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 17% decrease to the company's top line. As a result, revenue from three years ago have also fallen 1.1% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 7.0% during the coming year according to the eleven analysts following the company. With the industry predicted to deliver 13% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Dian Diagnostics GroupLtd's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Despite Dian Diagnostics GroupLtd's share price climbing recently, its P/S still lags most other companies. 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 Dian Diagnostics GroupLtd maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Dian Diagnostics GroupLtd, and understanding should be part of your investment process.

If you're unsure about the strength of Dian Diagnostics GroupLtd's 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.