What You Can Learn From Qing Song Health Co.,Ltd.'s (TWSE:6931) P/S After Its 26% Share Price Crash

Qing Song Health Co.,Ltd. (TWSE:6931) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 11% in that time.

Although its price has dipped substantially, given around half the companies in Taiwan's Healthcare industry have price-to-sales ratios (or "P/S") below 1.8x, you may still consider Qing Song HealthLtd as a stock to avoid entirely with its 4.6x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Qing Song HealthLtd

How Has Qing Song HealthLtd Performed Recently?

Qing Song HealthLtd has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

Although there are no analyst estimates available for Qing Song HealthLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Qing Song HealthLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 17% gain to the company's top line. Pleasingly, revenue has also lifted 169% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 17% shows it's noticeably more attractive.

With this information, we can see why Qing Song HealthLtd is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What We Can Learn From Qing Song HealthLtd's P/S?

Qing Song HealthLtd's shares may have suffered, but its P/S remains high. 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.

We've established that Qing Song HealthLtd maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Qing Song HealthLtd with six simple checks.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.