There’s No Escaping Mediwelcome Healthcare Management & Technology Inc.’s (HKG:2159) Muted Revenues Despite A 25% Share Price Rise

Mediwelcome Healthcare Management & Technology Inc. (HKG:2159) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 42% over that time.

Even after such a large jump in price, Mediwelcome Healthcare Management & Technology’s price-to-sales (or “P/S”) ratio of 0.2x might still make it look like a buy right now compared to the Healthcare industry in Hong Kong, where around half of the companies have P/S ratios above 1x and even P/S above 3x are quite common. Although, it’s not wise to just take the P/S at face value as there may be an explanation why it’s limited.

View our latest analysis for Mediwelcome Healthcare Management & Technology

What Does Mediwelcome Healthcare Management & Technology’s Recent Performance Look Like?

The revenue growth achieved at Mediwelcome Healthcare Management & Technology over the last year would be more than acceptable for most companies. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. 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.

If we review the last year of revenue growth, the company posted a worthy increase of 9.1%. 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. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry’s one-year forecast for expansion of 13% shows it’s an unpleasant look.

With this in mind, we understand why Mediwelcome Healthcare Management & Technology’s P/S is lower than most of its industry peers. 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 Does Mediwelcome Healthcare Management & Technology’s P/S Mean For Investors?

The latest share price surge wasn’t enough to lift Mediwelcome Healthcare Management & Technology’s P/S close to the industry median. 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.

It’s no surprise that Mediwelcome Healthcare Management & Technology maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn’t great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it’s hard to see the share price moving strongly in either direction in the near future under these circumstances.

Having said that, be aware Mediwelcome Healthcare Management & Technology is showing 3 warning signs in our investment analysis, and 2 of those make us uncomfortable.

If you’re unsure about the strength of Mediwelcome Healthcare Management & Technology’s business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.