Modern Healthcare Technology Holdings Limited's (HKG:919) price-to-sales (or "P/S") ratio of 0.2x might make it look like a buy right now compared to the Consumer Services 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. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
View our latest analysis for Modern Healthcare Technology Holdings
What Does Modern Healthcare Technology Holdings' Recent Performance Look Like?
The revenue growth achieved at Modern Healthcare Technology Holdings over the last year would be more than acceptable for most companies. 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.
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 Modern Healthcare Technology Holdings' earnings, revenue and cash flow.Is There Any Revenue Growth Forecasted For Modern Healthcare Technology Holdings?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Modern Healthcare Technology Holdings' to be considered reasonable.
If we review the last year of revenue growth, the company posted a terrific increase of 19%. The latest three year period has also seen a 12% overall rise in revenue, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
This is in contrast to the rest of the industry, which is expected to grow by 19% over the next year, materially higher than the company's recent medium-term annualised growth rates.
With this in consideration, it's easy to understand why Modern Healthcare Technology Holdings' P/S falls short of the mark set by its industry peers. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.
The Final Word
While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
Our examination of Modern Healthcare Technology Holdings confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. 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 experience a reversal of fortunes anytime soon.
Plus, you should also learn about these 3 warning signs we've spotted with Modern Healthcare Technology Holdings (including 1 which is a bit concerning).
If you're unsure about the strength of Modern Healthcare Technology Holdings' 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.