MedNation AG (FRA:EIF) Soars 49% But It's A Story Of Risk Vs Reward

Despite an already strong run, MedNation AG (FRA:EIF) shares have been powering on, with a gain of 49% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 79% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about MedNation's P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Healthcare industry in Germany is also close to 0.5x. 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.

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What Does MedNation's P/S Mean For Shareholders?

Revenue has risen firmly for MedNation recently, which is pleasing to see. It might be that many expect the respectable revenue performance to wane, 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.

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

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

The only time you'd be comfortable seeing a P/S like MedNation's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 7.6% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 33% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Comparing that to the industry, which is only predicted to deliver 2.9% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that MedNation's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On MedNation's P/S

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

We've established that MedNation currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

We don't want to rain on the parade too much, but we did also find 4 warning signs for MedNation (3 make us uncomfortable!) that you need to be mindful of.

If you're unsure about the strength of MedNation'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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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.