Shanghai HeartCare Medical Technology Corporation Limited (HKG:6609) Shares May Have Slumped 27% But Getting In Cheap Is Still Unlikely

To the annoyance of some shareholders, Shanghai HeartCare Medical Technology Corporation Limited (HKG:6609) shares are down a considerable 27% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 35% share price drop.

Even after such a large drop in price, there still wouldn't be many who think Shanghai HeartCare Medical Technology's price-to-sales (or "P/S") ratio of 4.4x is worth a mention when the median P/S in Hong Kong's Medical Equipment industry is similar at about 5.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Shanghai HeartCare Medical Technology

How Has Shanghai HeartCare Medical Technology Performed Recently?

There hasn't been much to differentiate Shanghai HeartCare Medical Technology's and the industry's revenue growth lately. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. Those who are bullish on Shanghai HeartCare Medical Technology will be hoping that revenue performance can pick up, so that they can pick up the stock at a slightly lower valuation.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shanghai HeartCare Medical Technology.

Is There Some Revenue Growth Forecasted For Shanghai HeartCare Medical Technology?

In order to justify its P/S ratio, Shanghai HeartCare Medical Technology would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 103% last year. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 39% per annum during the coming three years according to the dual analysts following the company. With the industry predicted to deliver 144% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's curious that Shanghai HeartCare Medical Technology's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

With its share price dropping off a cliff, the P/S for Shanghai HeartCare Medical Technology looks to be in line with the rest of the Medical Equipment industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look at the analysts forecasts of Shanghai HeartCare Medical Technology's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Shanghai HeartCare Medical Technology with six simple checks on some of these key factors.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.