Gaush Meditech Ltd (HKG:2407) Looks Inexpensive After Falling 30% But Perhaps Not Attractive Enough

The Gaush Meditech Ltd (HKG:2407) share price has fared very poorly over the last month, falling by a substantial 30%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 69% loss during that time.

Although its price has dipped substantially, Gaush Meditech may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.4x, considering almost half of all companies in the Medical Equipment industry in Hong Kong have P/S ratios greater than 2.8x and even P/S higher than 6x aren't out of the ordinary. 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 Gaush Meditech

What Does Gaush Meditech's P/S Mean For Shareholders?

Gaush Meditech could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Keen to find out how analysts think Gaush Meditech's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Revenue Growth Forecasted For Gaush Meditech?

Gaush Meditech's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. The latest three year period has also seen an excellent 46% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 14% per annum during the coming three years according to the sole analyst following the company. With the industry predicted to deliver 48% growth per annum, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Gaush Meditech's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Gaush Meditech's P/S

The southerly movements of Gaush Meditech's shares means its P/S is now sitting at a pretty low level. 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 Gaush Meditech maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for Gaush Meditech that you need to take into consideration.

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

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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.

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