Winner Medical Co., Ltd.'s (SZSE:300888) price-to-sales (or "P/S") ratio of 1.9x might make it look like a strong buy right now compared to the Medical Equipment industry in China, where around half of the companies have P/S ratios above 5.4x and even P/S above 9x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

How Winner Medical Has Been Performing

Winner Medical could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Is There Any Revenue Growth Forecasted For Winner Medical?

The only time you'd be truly comfortable seeing a P/S as depressed as Winner Medical's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a frustrating 32% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 42% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 17% during the coming year according to the five analysts following the company. That's shaping up to be materially lower than the 27% growth forecast for the broader industry.

With this in consideration, its clear as to why Winner Medical's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Winner Medical's P/S

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As expected, our analysis of Winner Medical's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Winner Medical that you should be aware of.

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.

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