Investors Don't See Light At End Of HeartCore Enterprises, Inc.'s (NASDAQ:HTCR) Tunnel And Push Stock Down 31%

The HeartCore Enterprises, Inc. (NASDAQ:HTCR) share price has fared very poorly over the last month, falling by a substantial 31%. Longer-term, the stock has been solid despite a difficult 30 days, gaining 22% in the last year.

Since its price has dipped substantially, HeartCore Enterprises may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.8x, since almost half of all companies in the Software industry in the United States have P/S ratios greater than 4.7x and even P/S higher than 10x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for HeartCore Enterprises

What Does HeartCore Enterprises' Recent Performance Look Like?

HeartCore Enterprises certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For HeartCore Enterprises?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like HeartCore Enterprises' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 48% gain to the company's top line. Pleasingly, revenue has also lifted 180% in aggregate from three years ago, thanks to the last 12 months of growth. 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 growth is heading into negative territory, declining 12% over the next year. Meanwhile, the broader industry is forecast to expand by 18%, which paints a poor picture.

With this information, we are not surprised that HeartCore Enterprises is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What Does HeartCore Enterprises' P/S Mean For Investors?

Having almost fallen off a cliff, HeartCore Enterprises' share price has pulled its P/S way down as well. 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.

It's clear to see that HeartCore Enterprises maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

Having said that, be aware HeartCore Enterprises is showing 5 warning signs in our investment analysis, and 4 of those can't be ignored.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.