Zhonghong Pulin Medical Products Co., Ltd. (SZSE:300981) shares have continued their recent momentum with a 29% gain in the last month alone. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

In spite of the firm bounce in price, considering about half the companies operating in China's Medical Equipment industry have price-to-sales ratios (or "P/S") above 6.1x, you may still consider Zhonghong Pulin Medical Products as an great investment opportunity with its 2.6x P/S ratio. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

What Does Zhonghong Pulin Medical Products' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Zhonghong Pulin Medical Products has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Taking a look back first, we see that the company grew revenue by an impressive 22% last year. Still, revenue has fallen 62% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 13% during the coming year according to the sole analyst following the company. That's shaping up to be materially lower than the 26% growth forecast for the broader industry.

With this in consideration, its clear as to why Zhonghong Pulin Medical Products' 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 Zhonghong Pulin Medical Products' P/S

Zhonghong Pulin Medical Products' recent share price jump still sees fails to bring its P/S alongside the industry median. 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 Zhonghong Pulin Medical Products' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Zhonghong Pulin Medical Products (2 don't sit too well with us!) that you should be aware of before investing here.

If you're unsure about the strength of Zhonghong Pulin Medical Products' 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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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.