Improve Medical Instruments Co., Ltd.'s (SZSE:300030) 25% Dip In Price Shows Sentiment Is Matching Revenues

Unfortunately for some shareholders, the Improve Medical Instruments Co., Ltd. (SZSE:300030) share price has dived 25% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 28% in that time.

Since its price has dipped substantially, Improve Medical Instruments' price-to-sales (or "P/S") ratio of 2.5x might make it look like a strong buy right now compared to the wider Life Sciences industry in China, where around half of the companies have P/S ratios above 5.3x and even P/S above 8x are quite common. 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 Improve Medical Instruments

How Improve Medical Instruments Has Been Performing

For instance, Improve Medical Instruments' receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Improve Medical Instruments 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 Improve Medical Instruments will help you shine a light on its historical performance.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

Improve Medical Instruments' 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.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 12%. This means it has also seen a slide in revenue over the longer-term as revenue is down 17% in total over the last three years. 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 21% shows it's an unpleasant look.

In light of this, it's understandable that Improve Medical Instruments' 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. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What We Can Learn From Improve Medical Instruments' P/S?

Improve Medical Instruments' P/S looks about as weak as its stock price lately. 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 Improve Medical Instruments 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. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Improve Medical Instruments (1 doesn't sit too well with us) you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.