Risks Still Elevated At These Prices As Fischer Medical Ventures Limited (NSE:FISCHER) Shares Dive 26%

Fischer Medical Ventures Limited (NSE:FISCHER) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. 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.

In spite of the heavy fall in price, given around half the companies in India's Medical Equipment industry have price-to-sales ratios (or "P/S") below 2.1x, you may still consider Fischer Medical Ventures as a stock to avoid entirely with its 27.5x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Fischer Medical Ventures

How Has Fischer Medical Ventures Performed Recently?

Recent times have been quite advantageous for Fischer Medical Ventures as its revenue has been rising very briskly. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For Fischer Medical Ventures?

Fischer Medical Ventures' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 142%. Still, revenue has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the industry, which is expected to grow by 21% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it concerning that Fischer Medical Ventures is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Key Takeaway

Fischer Medical Ventures' shares may have suffered, but its P/S remains high. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Fischer Medical Ventures revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

You should always think about risks. Case in point, we've spotted 3 warning signs for Fischer Medical Ventures you should be aware of, and 1 of them is a bit concerning.

If these risks are making you reconsider your opinion on Fischer Medical Ventures, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.