Subdued Growth No Barrier To Suzhou Basecare Medical Corporation Limited's (HKG:2170) Price

It's not a stretch to say that Suzhou Basecare Medical Corporation Limited's (HKG:2170) price-to-sales (or "P/S") ratio of 3.3x right now seems quite "middle-of-the-road" for companies in the Medical Equipment industry in Hong Kong, where the median P/S ratio is around 3.7x. 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.

Check out our latest analysis for Suzhou Basecare Medical

How Has Suzhou Basecare Medical Performed Recently?

Recent times have been quite advantageous for Suzhou Basecare Medical as its revenue has been rising very briskly. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Suzhou Basecare Medical will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 Suzhou Basecare Medical's earnings, revenue and cash flow.

How Is Suzhou Basecare Medical's Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 57% last year. The latest three year period has also seen an excellent 149% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 53% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's curious that Suzhou Basecare Medical's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Final Word

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.

We've established that Suzhou Basecare Medical's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Suzhou Basecare Medical that you need to be mindful of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.