Mediwelcome Healthcare Management & Technology Inc.’s (HKG:2159) Shares Bounce 26% But Its Business Still Trails The Industry

Despite an already strong run, Mediwelcome Healthcare Management & Technology Inc. (HKG:2159) shares have been powering on, with a gain of 26% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 17% is also fairly reasonable.

In spite of the firm bounce in price, given about half the companies operating in Hong Kong’s Healthcare industry have price-to-sales ratios (or “P/S”) above 1x, you may still consider Mediwelcome Healthcare Management & Technology as an attractive investment with its 0.3x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it’s justified.

View our latest analysis for Mediwelcome Healthcare Management & Technology

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

Mediwelcome Healthcare Management & Technology has been doing a good job lately as it’s been growing revenue at a solid pace. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. If that doesn’t eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

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

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

In order to justify its P/S ratio, Mediwelcome Healthcare Management & Technology would need to produce sluggish growth that’s trailing the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 9.1% last year. Ultimately though, it couldn’t turn around the poor performance of the prior period, with revenue shrinking 49% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 11% over the next year, which really puts the company’s recent medium-term revenue decline into perspective.

With this information, we are not surprised that Mediwelcome Healthcare Management & Technology is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There’s potential for the P/S to fall to even lower levels if the company doesn’t improve its top-line growth.

What We Can Learn From Mediwelcome Healthcare Management & Technology’s P/S?

Despite Mediwelcome Healthcare Management & Technology’s share price climbing recently, its P/S still lags most other companies. 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.

As we suspected, our examination of Mediwelcome Healthcare Management & Technology revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. At this stage investors feel the potential for an improvement in revenue isn’t great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You need to take note of risks, for example – Mediwelcome Healthcare Management & Technology has 4 warning signs (and 2 which don’t sit too well with us) we think you should know about.

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).

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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.