What Thomson Medical Group Limited's (SGX:A50) 33% Share Price Gain Is Not Telling You

The Thomson Medical Group Limited (SGX:A50) share price has done very well over the last month, posting an excellent gain of 33%. Taking a wider view, although not as strong as the last month, the full year gain of 14% is also fairly reasonable.

Following the firm bounce in price, when almost half of the companies in Singapore's Healthcare industry have price-to-sales ratios (or "P/S") below 2x, you may consider Thomson Medical Group as a stock probably not worth researching with its 3.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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Check out our latest analysis for Thomson Medical Group

What Does Thomson Medical Group's P/S Mean For Shareholders?

Thomson Medical Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Do Revenue Forecasts Match The High P/S Ratio?

Thomson Medical Group's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. The latest three year period has also seen an excellent 44% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 12% over the next year. With the industry predicted to deliver 15% growth, the company is positioned for a weaker revenue result.

With this in consideration, we believe it doesn't make sense that Thomson Medical Group's P/S is outpacing its industry peers. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

Thomson Medical Group shares have taken a big step in a northerly direction, but its P/S is elevated as a result. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Thomson Medical Group, this doesn't appear to be impacting the P/S in the slightest. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. At these price levels, investors should remain cautious, particularly if things don't improve.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Thomson Medical Group (of which 1 makes us a bit uncomfortable!) you should know about.

If these risks are making you reconsider your opinion on Thomson Medical Group, 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.