Some Shanghai HeartCare Medical Technology Corporation Limited (HKG:6609) Shareholders Look For Exit As Shares Take 29% Pounding

Shanghai HeartCare Medical Technology Corporation Limited (HKG:6609) shareholders won't be pleased to see that the share price has had a very rough month, dropping 29% and undoing the prior period's positive performance. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 143% in the last twelve months.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Shanghai HeartCare Medical Technology's P/S ratio of 5.1x, since the median price-to-sales (or "P/S") ratio for the Medical Equipment industry in Hong Kong is also close to 5.5x. 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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Check out our latest analysis for Shanghai HeartCare Medical Technology

How Has Shanghai HeartCare Medical Technology Performed Recently?

Recent times have been quite advantageous for Shanghai HeartCare Medical Technology as its revenue has been rising very briskly. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Shanghai HeartCare Medical Technology 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 Shanghai HeartCare Medical Technology's earnings, revenue and cash flow.

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 33% last year. The latest three year period has also seen an excellent 145% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

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.

With this in mind, we find it intriguing that Shanghai HeartCare Medical Technology's P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From Shanghai HeartCare Medical Technology's P/S?

Shanghai HeartCare Medical Technology's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Shanghai HeartCare Medical Technology revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Shanghai HeartCare Medical Technology that you should be aware of.

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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.