Some Shareholders Feeling Restless Over Shanghai HeartCare Medical Technology Corporation Limited's (HKG:6609) P/S Ratio

With a median price-to-sales (or "P/S") ratio of close to 2.6x in the Medical Equipment industry in Hong Kong, you could be forgiven for feeling indifferent about Shanghai HeartCare Medical Technology Corporation Limited's (HKG:6609) P/S ratio, which comes in at about the same. 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 Shanghai HeartCare Medical Technology

What Does Shanghai HeartCare Medical Technology's Recent Performance Look Like?

Shanghai HeartCare Medical Technology could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think Shanghai HeartCare Medical Technology's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

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

If we review the last year of revenue growth, the company posted a terrific increase of 27%. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 31% per annum over the next three years. That's shaping up to be materially lower than the 41% each year growth forecast for the broader industry.

With this in mind, we find it intriguing that Shanghai HeartCare Medical Technology's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Key Takeaway

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.

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. A positive change is needed in order to justify the current price-to-sales ratio.

Plus, you should also learn about this 1 warning sign we've spotted with Shanghai HeartCare Medical Technology.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com