Little Excitement Around EC Healthcare's (HKG:2138) Revenues As Shares Take 31% Pounding

To the annoyance of some shareholders, EC Healthcare (HKG:2138) shares are down a considerable 31% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 77% loss during that time.

Following the heavy fall in price, considering around half the companies operating in Hong Kong's Consumer Services industry have price-to-sales ratios (or "P/S") above 1x, you may consider EC Healthcare as an solid investment opportunity with its 0.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for EC Healthcare

How EC Healthcare Has Been Performing

EC Healthcare could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

If we review the last year of revenue growth, the company posted a worthy increase of 8.7%. Pleasingly, revenue has also lifted 102% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 14% over the next year. That's shaping up to be materially lower than the 19% growth forecast for the broader industry.

In light of this, it's understandable that EC Healthcare's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From EC Healthcare's P/S?

EC Healthcare's recently weak share price has pulled its P/S back below other Consumer Services companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of EC Healthcare's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware EC Healthcare is showing 1 warning sign in our investment analysis, you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.