Mediwelcome Healthcare Management & Technology Inc.’s (HKG:2159) 29% Share Price Surge Not Quite Adding Up

Explore Mediwelcome Healthcare Management & Technology’s Fair Values from the Community and select yours

Despite an already strong run, Mediwelcome Healthcare Management & Technology Inc. (HKG:2159) shares have been powering on, with a gain of 29% in the last thirty days. This latest share price bounce rounds out a remarkable 380% gain over the last twelve months.

In spite of the firm bounce in price, there still wouldn’t be many who think Mediwelcome Healthcare Management & Technology’s price-to-sales (or “P/S”) ratio of 1.2x is worth a mention when the median P/S in Hong Kong’s Healthcare industry is similar at about 1x. Although, it’s not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Check out our latest analysis for Mediwelcome Healthcare Management & Technology

What Does Mediwelcome Healthcare Management & Technology’s P/S Mean For Shareholders?

For example, consider that Mediwelcome Healthcare Management & Technology’s financial performance has been poor lately as its revenue has been in decline. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you’d at least be hoping this is the case so that you could potentially pick up some stock while it’s not quite in favour.

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How Is Mediwelcome Healthcare Management & Technology’s Revenue Growth Trending?

There’s an inherent assumption that a company should be matching the industry for P/S ratios like Mediwelcome Healthcare Management & Technology’s to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company’s revenues fell to the tune of 2.9%. The last three years don’t look nice either as the company has shrunk revenue by 55% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 8.2% growth in the next 12 months, the company’s downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it’s somewhat alarming that Mediwelcome Healthcare Management & Technology’s P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren’t willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Key Takeaway

Mediwelcome Healthcare Management & Technology’s stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Typically, we’d caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look at Mediwelcome Healthcare Management & Technology revealed its shrinking revenues over the medium-term haven’t impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it’d make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

There are also other vital risk factors to consider and we’ve discovered 4 warning signs for Mediwelcome Healthcare Management & Technology (3 are potentially serious!) that you should be aware of before investing here.

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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.