It's Down 34% But Yonghe Medical Group Co., Ltd. (HKG:2279) Could Be Riskier Than It Looks

To the annoyance of some shareholders, Yonghe Medical Group Co., Ltd. (HKG:2279) shares are down a considerable 34% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 87% share price decline.

Following the heavy fall in price, Yonghe Medical Group's price-to-sales (or "P/S") ratio of 0.3x might make it look like a buy right now compared to the Healthcare industry in Hong Kong, where around half of the companies have P/S ratios above 1x and even P/S above 3x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Yonghe Medical Group

How Has Yonghe Medical Group Performed Recently?

Yonghe Medical Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Yonghe Medical Group.

How Is Yonghe Medical Group's Revenue Growth Trending?

In order to justify its P/S ratio, Yonghe Medical Group would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 26% last year. As a result, it also grew revenue by 8.5% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 18% per annum during the coming three years according to the three analysts following the company. With the industry only predicted to deliver 14% per annum, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Yonghe Medical Group's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Yonghe Medical Group's recently weak share price has pulled its P/S back below other Healthcare companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

To us, it seems Yonghe Medical Group currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Before you settle on your opinion, we've discovered 2 warning signs for Yonghe Medical Group that you should be aware 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.