Some Chimin Health Management Co., Ltd. (SHSE:603222) Shareholders Look For Exit As Shares Take 26% Pounding

Chimin Health Management Co., Ltd. (SHSE:603222) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 23% in that time.

Even after such a large drop in price, there still wouldn't be many who think Chimin Health Management's price-to-sales (or "P/S") ratio of 3.5x is worth a mention when the median P/S in China's Pharmaceuticals industry is similar at about 3.2x. 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.

See our latest analysis for Chimin Health Management

What Does Chimin Health Management's Recent Performance Look Like?

The recent revenue growth at Chimin Health Management would have to be considered satisfactory if not spectacular. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. 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.

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 Chimin Health Management's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Chimin Health Management?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Chimin Health Management's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 2.8%. Still, lamentably revenue has fallen 15% in aggregate from three years ago, which is disappointing. 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 177% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Chimin Health Management is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What We Can Learn From Chimin Health Management's P/S?

With its share price dropping off a cliff, the P/S for Chimin Health Management looks to be in line with the rest of the Pharmaceuticals industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We find it unexpected that Chimin Health Management trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Chimin Health Management that you need to be mindful of.

If you're unsure about the strength of Chimin Health Management'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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