The Improve Medical Instruments Co., Ltd. (SZSE:300030) share price has done very well over the last month, posting an excellent gain of 46%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 23% over that time.
Even after such a large jump in price, given about half the companies operating in China's Life Sciences industry have price-to-sales ratios (or "P/S") above 4.2x, you may still consider Improve Medical Instruments as an attractive investment with its 2.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
How Has Improve Medical Instruments Performed Recently?
For example, consider that Improve Medical Instruments' financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate then existing shareholders may be feeling 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 Improve Medical Instruments' earnings, revenue and cash flow.
Do Revenue Forecasts Match The Low P/S Ratio?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Improve Medical Instruments' to be considered reasonable.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 8.9%. As a result, revenue from three years ago have also fallen 34% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 16% shows it's an unpleasant look.
In light of this, it's understandable that Improve Medical Instruments' P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.
The Key Takeaway
The latest share price surge wasn't enough to lift Improve Medical Instruments' P/S close to the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
As we suspected, our examination of Improve Medical Instruments revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. 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 moving strongly in either direction in the near future under these circumstances.
You should always think about risks. Case in point, we've spotted 2 warning signs for Improve Medical Instruments you should be aware of.
If you're unsure about the strength of Improve Medical Instruments' 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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有鑑於此,可以理解的是,Imverme Medical Instruments的市銷率將低於其他多數公司。但是,我們認爲,從長遠來看,收入萎縮不太可能導致市銷率穩定,這可能會使股東爲未來的失望做好準備。如果公司不改善營收增長,市銷率有可能降至更低的水平。
關鍵要點
最近的股價上漲不足以使Improve Medical Instruments的市銷率接近行業中位數。通常,我們傾向於限制使用市銷率來確定市場對公司整體健康狀況的看法。
正如我們所懷疑的那樣,我們對Improve Medical Instruments的檢查顯示,鑑於該行業即將增長,其中期收入的萎縮是其低市銷售率的原因。在現階段,投資者認爲,收入改善的可能性不足以證明更高的市銷率是合理的。如果最近的中期收入趨勢繼續下去,在這種情況下,很難看到股價在不久的將來雙向強勁走勢。
你應該時刻考慮風險。舉個例子,我們發現了兩個你應該注意的改善醫療器械的警告信號。
如果您不確定Improve Medical Instruments業務的實力,爲什麼不瀏覽我們的互動式股票清單,其中列出了您可能錯過的其他一些公司的業務基礎穩健的股票。