Venus Medtech (Hangzhou) Inc.'s (HKG:2500) 25% Dip In Price Shows Sentiment Is Matching Revenues

To the annoyance of some shareholders, Venus Medtech (Hangzhou) Inc. (HKG:2500) shares are down a considerable 25% in the last month, which continues a horrid run for the company. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

Following the heavy fall in price, Venus Medtech (Hangzhou) may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.4x, since almost half of all companies in the Medical Equipment industry in Hong Kong have P/S ratios greater than 5.5x and even P/S higher than 9x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

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See our latest analysis for Venus Medtech (Hangzhou)

What Does Venus Medtech (Hangzhou)'s Recent Performance Look Like?

As an illustration, revenue has deteriorated at Venus Medtech (Hangzhou) over the last year, which is not ideal at all. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

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 Venus Medtech (Hangzhou)'s earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Venus Medtech (Hangzhou)?

Venus Medtech (Hangzhou)'s P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Retrospectively, the last year delivered a frustrating 8.4% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 11% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 43% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Venus Medtech (Hangzhou)'s P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Venus Medtech (Hangzhou)'s P/S

Venus Medtech (Hangzhou)'s P/S looks about as weak as its stock price lately. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Venus Medtech (Hangzhou) revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You need to take note of risks, for example - Venus Medtech (Hangzhou) has 3 warning signs (and 2 which make us uncomfortable) we think you should know about.

If you're unsure about the strength of Venus Medtech (Hangzhou)'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.