Jiangsu Apon Medical Technology Co., Ltd.'s (SZSE:300753) Share Price Boosted 39% But Its Business Prospects Need A Lift Too

Despite an already strong run, Jiangsu Apon Medical Technology Co., Ltd. (SZSE:300753) shares have been powering on, with a gain of 39% in the last thirty days. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 6.6% in the last twelve months.

In spite of the firm bounce in price, Jiangsu Apon Medical Technology may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 4.8x, since almost half of all companies in the Medical Equipment industry in China have P/S ratios greater than 6.2x and even P/S higher than 10x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Jiangsu Apon Medical Technology

How Jiangsu Apon Medical Technology Has Been Performing

Revenue has risen firmly for Jiangsu Apon Medical Technology recently, which is pleasing to see. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Jiangsu Apon Medical Technology will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

How Is Jiangsu Apon Medical Technology's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Jiangsu Apon Medical Technology's to be considered reasonable.

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. Still, lamentably revenue has fallen 21% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 27% shows it's an unpleasant look.

With this in mind, we understand why Jiangsu Apon Medical Technology's P/S is lower than most of its industry peers. 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. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Final Word

Jiangsu Apon Medical Technology's stock price has surged recently, but its but its P/S still remains modest. 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 Jiangsu Apon Medical Technology confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. 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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Jiangsu Apon Medical Technology (1 makes us a bit uncomfortable) you should be aware of.

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.