New Ray Medicine International Holding Limited's (HKG:6108) 28% Share Price Surge Not Quite Adding Up

The New Ray Medicine International Holding Limited (HKG:6108) share price has done very well over the last month, posting an excellent gain of 28%. The last 30 days bring the annual gain to a very sharp 57%.

In spite of the firm bounce in price, there still wouldn't be many who think New Ray Medicine International Holding's price-to-sales (or "P/S") ratio of 1x is worth a mention when the median P/S in Hong Kong's Healthcare industry is similar at about 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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View our latest analysis for New Ray Medicine International Holding

How New Ray Medicine International Holding Has Been Performing

With revenue growth that's exceedingly strong of late, New Ray Medicine International Holding has been doing very well. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Although there are no analyst estimates available for New Ray Medicine International Holding, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For New Ray Medicine International Holding?

In order to justify its P/S ratio, New Ray Medicine International Holding would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 87% gain to the company's top line. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 72% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 7.8% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's somewhat alarming that New Ray Medicine International Holding's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Bottom Line On New Ray Medicine International Holding's P/S

Its shares have lifted substantially and now New Ray Medicine International Holding's P/S is back within range of the industry median. 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.

Our look at New Ray Medicine International Holding revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Before you take the next step, you should know about the 2 warning signs for New Ray Medicine International Holding that we have uncovered.

If these risks are making you reconsider your opinion on New Ray Medicine International Holding, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.