Hospital Corporation of China Limited (HKG:3869) Soars 34% But It's A Story Of Risk Vs Reward

Hospital Corporation of China Limited (HKG:3869) shares have continued their recent momentum with a 34% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 11% over that time.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Hospital Corporation of China's P/S ratio of 0.5x, since the median price-to-sales (or "P/S") ratio for the Healthcare industry in Hong Kong is also close to 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Hospital Corporation of China

How Hospital Corporation of China Has Been Performing

Revenue has risen firmly for Hospital Corporation of China recently, which is pleasing to see. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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 Hospital Corporation of China's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Hospital Corporation of China?

Hospital Corporation of China's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 8.3% last year. This was backed up an excellent period prior to see revenue up by 236% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 13% shows it's noticeably more attractive.

With this information, we find it interesting that Hospital Corporation of China is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Hospital Corporation of China's P/S

Hospital Corporation of China appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

We didn't quite envision Hospital Corporation of China's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. 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.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Hospital Corporation of China with six simple checks.

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.