Optimistic Investors Push MEDICLIN Aktiengesellschaft (ETR:MED) Shares Up 26% But Growth Is Lacking

MEDICLIN Aktiengesellschaft (ETR:MED) shareholders have had their patience rewarded with a 26% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 15% is also fairly reasonable.

In spite of the firm bounce in price, there still wouldn't be many who think MEDICLIN's price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Germany's Healthcare industry is similar at about 0.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for MEDICLIN

How Has MEDICLIN Performed Recently?

MEDICLIN's revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to show no drastic signs of changing, justifying the P/S being at current levels. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

Keen to find out how analysts think MEDICLIN's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

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

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Regardless, revenue has managed to lift by a handy 16% in aggregate from three years ago, thanks to the earlier period of growth. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue growth is heading into negative territory, declining 2.6% over the next year. With the industry predicted to deliver 0.4% growth, that's a disappointing outcome.

In light of this, it's somewhat alarming that MEDICLIN's P/S sits in line with the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

The Bottom Line On MEDICLIN's P/S

MEDICLIN's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

While MEDICLIN's P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.

Having said that, be aware MEDICLIN 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.