Investors Don't See Light At End Of Guangdong Biolight Meditech Co., Ltd.'s (SZSE:300246) Tunnel And Push Stock Down 26%

Guangdong Biolight Meditech Co., Ltd. (SZSE:300246) shares have had a horrible month, losing 26% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 40% in that time.

Since its price has dipped substantially, considering about half the companies operating in China's Medical Equipment industry have price-to-sales ratios (or "P/S") above 5.5x, you may consider Guangdong Biolight Meditech as an great investment opportunity with its 1.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for Guangdong Biolight Meditech

What Does Guangdong Biolight Meditech's P/S Mean For Shareholders?

For instance, Guangdong Biolight Meditech's receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Guangdong Biolight Meditech will help you shine a light on its historical performance.

How Is Guangdong Biolight Meditech's Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Guangdong Biolight Meditech's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 17%. As a result, revenue from three years ago have also fallen 2.6% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 25% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's understandable that Guangdong Biolight Meditech's P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does Guangdong Biolight Meditech's P/S Mean For Investors?

Having almost fallen off a cliff, Guangdong Biolight Meditech's share price has pulled its P/S way down as well. 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.

It's no surprise that Guangdong Biolight Meditech maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Having said that, be aware Guangdong Biolight Meditech is showing 1 warning sign in our investment analysis, you should know about.

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.