Xikang Cloud Hospital Holdings Inc.'s (HKG:9686) 25% Dip In Price Shows Sentiment Is Matching Revenues

Xikang Cloud Hospital Holdings Inc. (HKG:9686) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

After such a large drop in price, considering about half the companies operating in Hong Kong's Healthcare Services industry have price-to-sales ratios (or "P/S") above 4.5x, you may consider Xikang Cloud Hospital Holdings as an great investment opportunity with its 1.1x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for Xikang Cloud Hospital Holdings

How Has Xikang Cloud Hospital Holdings Performed Recently?

For example, consider that Xikang Cloud Hospital Holdings' financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Xikang Cloud Hospital Holdings will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Xikang Cloud Hospital Holdings?

The only time you'd be truly comfortable seeing a P/S as depressed as Xikang Cloud Hospital Holdings' is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a frustrating 22% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 6.9% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that to the industry, which is predicted to deliver 35% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's understandable that Xikang Cloud Hospital Holdings' P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Xikang Cloud Hospital Holdings' P/S looks about as weak as its stock price lately. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

In line with expectations, Xikang Cloud Hospital Holdings maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Xikang Cloud Hospital Holdings (1 shouldn't be ignored!) that you should be aware of before investing here.

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.

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