Investors Aren't Buying Modern Healthcare Technology Holdings Limited's (HKG:919) Revenues

When close to half the companies operating in the Consumer Services industry in Hong Kong have price-to-sales ratios (or "P/S") above 1.1x, you may consider Modern Healthcare Technology Holdings Limited (HKG:919) as an attractive investment with its 0.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Modern Healthcare Technology Holdings

How Has Modern Healthcare Technology Holdings Performed Recently?

Revenue has risen at a steady rate over the last year for Modern Healthcare Technology Holdings, which is generally not a bad outcome. It might be that many expect the respectable revenue performance to degrade, which has repressed the P/S. If that doesn't eventuate, then existing shareholders may have reason to be 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 Modern Healthcare Technology Holdings' earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Modern Healthcare Technology Holdings?

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

If we review the last year of revenue growth, the company posted a worthy increase of 4.2%. However, this wasn't enough as the latest three year period has seen an unpleasant 13% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 19% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's understandable that Modern Healthcare Technology Holdings' 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. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From Modern Healthcare Technology Holdings' P/S?

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 Modern Healthcare Technology Holdings revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. 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.

Plus, you should also learn about these 2 warning signs we've spotted with Modern Healthcare Technology Holdings.

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.