ClouDr Group Limited (HKG:9955) Soars 45% But It's A Story Of Risk Vs Reward

ClouDr Group Limited (HKG:9955) shareholders have had their patience rewarded with a 45% share price jump in the last month. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 7.3% in the last twelve months.

In spite of the firm bounce in price, when close to half the companies operating in Hong Kong's Healthcare industry have price-to-sales ratios (or "P/S") above 0.9x, you may still consider ClouDr Group as an enticing stock to check out with its 0.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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View our latest analysis for ClouDr Group

What Does ClouDr Group's Recent Performance Look Like?

ClouDr Group has been struggling lately as its revenue has declined faster than most other companies. Perhaps the market isn't expecting future revenue performance to improve, which has kept the P/S suppressed. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on ClouDr Group.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as ClouDr Group's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 5.5% decrease to the company's top line. Still, the latest three year period has seen an excellent 99% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 34% during the coming year according to the lone analyst following the company. With the industry only predicted to deliver 8.1%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that ClouDr Group's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What Does ClouDr Group's P/S Mean For Investors?

Despite ClouDr Group's share price climbing recently, its P/S still lags most other companies. 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.

To us, it seems ClouDr Group currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 1 warning sign for ClouDr Group that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.