Suzhou Basecare Medical Corporation Limited's (HKG:2170) Shares Leap 27% Yet They're Still Not Telling The Full Story

Suzhou Basecare Medical Corporation Limited (HKG:2170) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 48% in the last twelve months.

Even after such a large jump in price, there still wouldn't be many who think Suzhou Basecare Medical's price-to-sales (or "P/S") ratio of 3x is worth a mention when the median P/S in Hong Kong's Medical Equipment industry is similar at about 2.9x. 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 revenue growth for Suzhou Basecare Medical has been in line with the industry. It seems that many are expecting the mediocre revenue performance to persist, which has held the P/S ratio back. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

Want the full picture on analyst estimates for the company? Then our free report on Suzhou Basecare Medical will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

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 48% last year. The strong recent performance means it was also able to grow revenue by 156% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 120% as estimated by the lone analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 35%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Suzhou Basecare Medical's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Its shares have lifted substantially and now Suzhou Basecare Medical's P/S is back within range of the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Suzhou Basecare Medical currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Suzhou Basecare Medical 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.