MicroPort Scientific Corporation's (HKG:853) price-to-sales (or "P/S") ratio of 1.2x might make it look like a buy right now compared to the Medical Equipment industry in Hong Kong, where around half of the companies have P/S ratios above 2.9x and even P/S above 5x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

What Does MicroPort Scientific's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, MicroPort Scientific has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, MicroPort Scientific would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. Pleasingly, revenue has also lifted 41% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 18% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 23% per year, which is noticeably more attractive.

With this in consideration, its clear as to why MicroPort Scientific'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 MicroPort Scientific's P/S

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of MicroPort Scientific's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with MicroPort Scientific, and understanding should be part of your investment process.

If you're unsure about the strength of MicroPort Scientific's 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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