Unfortunately for some shareholders, the Innovative Medical Management Co.,Ltd. (SZSE:002173) share price has dived 27% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 46% in that time.
Although its price has dipped substantially, you could still be forgiven for thinking Innovative Medical ManagementLtd is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3.5x, considering almost half the companies in China's Healthcare industry have P/S ratios below 1.6x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.
SZSE:002173 Price to Sales Ratio vs Industry June 6th 2024
How Has Innovative Medical ManagementLtd Performed Recently?
Revenue has risen firmly for Innovative Medical ManagementLtd recently, which is pleasing to see. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. If not, then existing shareholders may be a little nervous about the viability 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 Innovative Medical ManagementLtd's earnings, revenue and cash flow.
What Are Revenue Growth Metrics Telling Us About The High P/S?
Innovative Medical ManagementLtd's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 8.1%. The solid recent performance means it was also able to grow revenue by 9.5% in total over the last three years. 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 16% over the next year, materially higher than the company's recent medium-term annualised growth rates.
With this in mind, we find it worrying that Innovative Medical ManagementLtd's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. 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 Innovative Medical ManagementLtd's P/S?
Despite the recent share price weakness, Innovative Medical ManagementLtd's P/S remains higher than most other companies in the industry. 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.
Our examination of Innovative Medical ManagementLtd 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. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Innovative Medical ManagementLtd with six simple checks will allow you to discover any risks that could be an issue.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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