Mediwelcome Healthcare Management & Technology Inc. (HKG:2159) Held Back By Insufficient Growth Even After Shares Climb 60%

Mediwelcome Healthcare Management & Technology Inc. (HKG:2159) shareholders have had their patience rewarded with a 60% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 66%.

Although its price has surged higher, given about half the companies operating in Hong Kong's Healthcare industry have price-to-sales ratios (or "P/S") above 1x, you may still consider Mediwelcome Healthcare Management & Technology as an attractive investment with its 0.4x 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.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Check out our latest analysis for Mediwelcome Healthcare Management & Technology

What Does Mediwelcome Healthcare Management & Technology's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Mediwelcome Healthcare Management & Technology over the last year, which is not ideal at all. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. 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 out of favour.

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

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

In order to justify its P/S ratio, Mediwelcome Healthcare Management & Technology would need to produce sluggish growth that's trailing the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 2.9%. As a result, revenue from three years ago have also fallen 55% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 8.1% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we understand why Mediwelcome Healthcare Management & Technology's P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Mediwelcome Healthcare Management & Technology's P/S

Mediwelcome Healthcare Management & Technology's stock price has surged recently, but its but its P/S still remains modest. 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.

Our examination of Mediwelcome Healthcare Management & Technology confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Mediwelcome Healthcare Management & Technology (1 is significant!) that you should be aware of before investing here.

If you're unsure about the strength of Mediwelcome Healthcare Management & Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.