July 24, 2024

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What Sanbo Hospital Management Group Limited’s (SZSE:301293) P/S Is Not Telling You

4 min read

When you see that almost half of the companies in the Healthcare industry in China have price-to-sales ratios (or “P/S”) below 1.5x, Sanbo Hospital Management Group Limited (SZSE:301293) looks to be giving off strong sell signals with its 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 Sanbo Hospital Management Group

ps-multiple-vs-industry
SZSE:301293 Price to Sales Ratio vs Industry June 26th 2024

How Sanbo Hospital Management Group Has Been Performing

Sanbo Hospital Management Group has been doing a good job lately as it’s been growing revenue at a solid pace. One possibility is that the P/S ratio is high because investors think this respectable revenue growth will be enough to outperform the broader industry in the near future. However, if this isn’t the case, investors might get caught out paying too much for the stock.

We don’t have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Sanbo Hospital Management Group’s earnings, revenue and cash flow.

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

The only time you’d be truly comfortable seeing a P/S as steep as Sanbo Hospital Management Group’s is when the company’s growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 20% last year. The latest three year period has also seen a 26% overall rise in revenue, aided extensively by its short-term performance. Therefore, it’s fair to say the revenue growth recently has been respectable for the company.

Comparing the recent medium-term revenue trends against the industry’s one-year growth forecast of 16% shows it’s noticeably less attractive.

With this information, we find it concerning that Sanbo Hospital Management Group is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company’s business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Sanbo Hospital Management Group’s P/S?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Sanbo Hospital Management Group revealed its poor three-year revenue trends aren’t detracting from the P/S as much as we though, given they look worse than current industry expectations. Right now we aren’t comfortable with the high P/S as this revenue performance isn’t likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it’s very challenging to accept these the share price as being reasonable.

The company’s balance sheet is another key area for risk analysis. Our free balance sheet analysis for Sanbo Hospital Management Group with six simple checks will allow you to discover any risks that could be an issue.

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).

Valuation is complex, but we’re helping make it simple.

Find out whether Sanbo Hospital Management Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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.

Valuation is complex, but we’re helping make it simple.

Find out whether Sanbo Hospital Management Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected]

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