Xikang Cloud Hospital Holdings Inc.'s (HKG:9686) Shares Bounce 35% But Its Business Still Trails The Industry

Xikang Cloud Hospital Holdings Inc. (HKG:9686) shareholders have had their patience rewarded with a 35% share price jump in the last month. Notwithstanding the latest gain, the annual share price return of 9.4% isn't as impressive.

Even after such a large jump in price, Xikang Cloud Hospital Holdings may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.5x, considering almost half of all companies in the Healthcare Services industry in Hong Kong have P/S ratios greater than 7.6x and even P/S higher than 12x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Xikang Cloud Hospital Holdings

What Does Xikang Cloud Hospital Holdings' Recent Performance Look Like?

For example, consider that Xikang Cloud Hospital Holdings' financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Although there are no analyst estimates available for Xikang Cloud Hospital Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

Xikang Cloud Hospital Holdings' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 6.7%. The last three years don't look nice either as the company has shrunk revenue by 18% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 45% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we are not surprised that Xikang Cloud Hospital Holdings is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

Even after such a strong price move, Xikang Cloud Hospital Holdings' P/S still trails 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 Xikang Cloud Hospital Holdings confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. 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 moving strongly in either direction in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Xikang Cloud Hospital Holdings with six simple checks on some of these key factors.

If you're unsure about the strength of Xikang Cloud Hospital Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.