Why Investors Shouldn't Be Surprised By MedSci Healthcare Holdings Limited's (HKG:2415) 29% Share Price Plunge

The MedSci Healthcare Holdings Limited (HKG:2415) share price has fared very poorly over the last month, falling by a substantial 29%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 83% loss during that time.

Even after such a large drop in price, when close to half the companies operating in Hong Kong's Healthcare Services industry have price-to-sales ratios (or "P/S") above 5.5x, you may still consider MedSci Healthcare Holdings as an enticing stock to check out with its 2.8x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for MedSci Healthcare Holdings

How Has MedSci Healthcare Holdings Performed Recently?

It looks like revenue growth has deserted MedSci Healthcare Holdings recently, which is not something to boast about. It might be that many expect the uninspiring revenue performance to worsen, which has repressed the P/S. If not, then existing shareholders may be feeling optimistic about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For MedSci Healthcare Holdings?

There's an inherent assumption that a company should underperform the industry for P/S ratios like MedSci Healthcare Holdings' to be considered reasonable.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. However, a few strong years before that means that it was still able to grow revenue by an impressive 62% in total over the last three years. Accordingly, shareholders will be pleased, but also have some questions to ponder about the last 12 months.

This is in contrast to the rest of the industry, which is expected to grow by 52% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in consideration, it's easy to understand why MedSci Healthcare Holdings' P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What We Can Learn From MedSci Healthcare Holdings' P/S?

MedSci Healthcare Holdings' P/S has taken a dip along with its share price. 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.

Our examination of MedSci Healthcare Holdings confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - MedSci Healthcare Holdings has 1 warning sign we think you should be aware of.

If you're unsure about the strength of MedSci Healthcare Holdings' 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.

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