Investors Don't See Light At End Of Middle East Healthcare Company's (TADAWUL:4009) Tunnel And Push Stock Down 26%

Middle East Healthcare Company (TADAWUL:4009) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 37% share price drop.

Following the heavy fall in price, Middle East Healthcare's price-to-sales (or "P/S") ratio of 1.3x might make it look like a buy right now compared to the Healthcare industry in Saudi Arabia, where around half of the companies have P/S ratios above 3x and even P/S above 5x are quite common. 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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Check out our latest analysis for Middle East Healthcare

What Does Middle East Healthcare's P/S Mean For Shareholders?

Recent times haven't been great for Middle East Healthcare as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

What Are Revenue Growth Metrics Telling Us About The Low P/S?

Middle East Healthcare's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 6.6% last year. Pleasingly, revenue has also lifted 50% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 8.9% per year during the coming three years according to the six analysts following the company. That's shaping up to be materially lower than the 14% per year growth forecast for the broader industry.

With this in consideration, its clear as to why Middle East Healthcare's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Middle East Healthcare's P/S has taken a dip along with its share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Middle East Healthcare maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you take the next step, you should know about the 2 warning signs for Middle East Healthcare (1 is significant!) that we have uncovered.

If these risks are making you reconsider your opinion on Middle East Healthcare, 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.