Shanghai Runda Medical Technology Co., Ltd. (SHSE:603108) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 22% share price drop.

In spite of the heavy fall in price, Shanghai Runda Medical Technology's price-to-sales (or "P/S") ratio of 1x might still make it look like a strong buy right now compared to the wider Life Sciences industry in China, where around half of the companies have P/S ratios above 4.2x and even P/S above 7x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

How Shanghai Runda Medical Technology Has Been Performing

Recent times haven't been great for Shanghai Runda Medical Technology as its revenue has been falling quicker than most other companies. The P/S ratio is probably low because investors think this poor revenue performance isn't going to improve at all. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Is There Any Revenue Growth Forecasted For Shanghai Runda Medical Technology?

In order to justify its P/S ratio, Shanghai Runda Medical Technology would need to produce anemic growth that's substantially trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 14%. This means it has also seen a slide in revenue over the longer-term as revenue is down 4.0% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 10% as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 16%, which is noticeably more attractive.

With this in consideration, its clear as to why Shanghai Runda Medical Technology's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Shanghai Runda Medical Technology's P/S looks about as weak as its stock price lately. 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 we suspected, our examination of Shanghai Runda Medical Technology's analyst forecasts revealed that its inferior revenue outlook is contributing 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. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you settle on your opinion, we've discovered 3 warning signs for Shanghai Runda Medical Technology (1 is a bit unpleasant!) 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.