Thalys Medical Technology Group Corporation (SHSE:603716) Shares Fly 26% But Investors Aren't Buying For Growth

The Thalys Medical Technology Group Corporation (SHSE:603716) share price has done very well over the last month, posting an excellent gain of 26%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 31% in the last twelve months.

Even after such a large jump in price, Thalys Medical Technology Group may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.8x, since almost half of all companies in the Biotechs industry in China have P/S ratios greater than 7.7x and even P/S higher than 12x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Thalys Medical Technology Group

How Thalys Medical Technology Group Has Been Performing

As an illustration, revenue has deteriorated at Thalys Medical Technology Group over the last year, which is not ideal at all. 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.

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 Thalys Medical Technology Group's earnings, revenue and cash flow.

How Is Thalys Medical Technology Group's Revenue Growth Trending?

Thalys Medical Technology Group's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 8.6%. As a result, revenue from three years ago have also fallen 27% overall. 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 53% shows it's an unpleasant look.

With this information, we are not surprised that Thalys Medical Technology Group is trading at a P/S lower than the industry. 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.

The Final Word

Shares in Thalys Medical Technology Group have risen appreciably however, its P/S is still subdued. 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.

It's no surprise that Thalys Medical Technology Group 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Thalys Medical Technology Group, and understanding these should be part of your investment process.

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.