C-MER Medical Holdings Limited (HKG:3309) Might Not Be As Mispriced As It Looks After Plunging 26%

The C-MER Medical Holdings Limited (HKG:3309) share price has fared very poorly over the last month, falling by a substantial 26%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 51% loss during that time.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about C-MER Medical Holdings' P/S ratio of 0.9x, since the median price-to-sales (or "P/S") ratio for the Healthcare industry in Hong Kong is also close to 1x. 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.

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View our latest analysis for C-MER Medical Holdings

What Does C-MER Medical Holdings' P/S Mean For Shareholders?

For example, consider that C-MER Medical Holdings' financial performance has been pretty ordinary lately as revenue growth is non-existent. One possibility is that the P/S is moderate because investors think this benign revenue growth rate might not be enough to outperform the broader industry in the near future. Those who are bullish on C-MER Medical Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 C-MER Medical Holdings' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For C-MER Medical Holdings?

There's an inherent assumption that a company should be matching the industry for P/S ratios like C-MER Medical 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. Although pleasingly revenue has lifted 72% in aggregate from three years ago, notwithstanding the last 12 months. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

Comparing that to the industry, which is only predicted to deliver 8.0% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that C-MER Medical Holdings' P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What Does C-MER Medical Holdings' P/S Mean For Investors?

Following C-MER Medical Holdings' share price tumble, its P/S is just clinging on to the industry median P/S. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that C-MER Medical Holdings currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 1 warning sign for C-MER Medical Holdings that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.