Take Care Before Jumping Onto ClouDr Group Limited (HKG:9955) Even Though It's 32% Cheaper

ClouDr Group Limited (HKG:9955) shares have had a horrible month, losing 32% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 59% loss during that time.

After such a large drop in price, given about half the companies operating in Hong Kong's Healthcare industry have price-to-sales ratios (or "P/S") above 1x, you may consider ClouDr Group as an attractive investment with its 0.2x 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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See our latest analysis for ClouDr Group

How ClouDr Group Has Been Performing

With revenue that's retreating more than the industry's average of late, ClouDr Group has been very sluggish. It seems that many are expecting the dismal revenue performance to persist, which has repressed the P/S. You'd much rather the company improve its revenue performance if you still believe in the business. Or at the very least, you'd be hoping the revenue slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

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

How Is ClouDr Group's Revenue Growth Trending?

In order to justify its P/S ratio, ClouDr Group would need to produce sluggish growth that's trailing the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 5.5%. Still, the latest three year period has seen an excellent 99% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 34% during the coming year according to the only analyst following the company. That's shaping up to be materially higher than the 8.0% growth forecast for the broader industry.

With this in consideration, we find it intriguing that ClouDr Group's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

ClouDr Group's recently weak share price has pulled its P/S back below other Healthcare companies. 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.

ClouDr Group's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 3 warning signs for ClouDr Group you should be aware of.

If you're unsure about the strength of ClouDr Group's 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.