Unfortunately for some shareholders, the Gaush Meditech Ltd (HKG:2407) share price has dived 35% in the last thirty days, prolonging recent pain.    The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 58% loss during that time.  

In spite of the heavy fall in price, Gaush Meditech may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.9x, considering almost half of all companies in the Medical Equipment industry in Hong Kong have P/S ratios greater than 3x and even P/S higher than 7x aren't out of the ordinary.   Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.  

SEHK:2407 Price to Sales Ratio vs Industry March 26th 2024

What Does Gaush Meditech's P/S Mean For Shareholders?

Gaush Meditech could be doing better as it's been growing revenue less than most other companies lately.   Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed.  If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.    

Want the full picture on analyst estimates for the company? Then our free report on Gaush Meditech will help you uncover what's on the horizon.  

What Are Revenue Growth Metrics Telling Us About The Low P/S?  

In order to justify its P/S ratio, Gaush Meditech 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 46% in aggregate from three years ago, partly thanks to the last 12 months of growth.  Therefore, it's fair to say the revenue growth recently has been superb for the company.  

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 14% over the next year.  Meanwhile, the rest of the industry is forecast to expand by 60%, which is noticeably more attractive.

With this in consideration, its clear as to why Gaush Meditech'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.  

What We Can Learn From Gaush Meditech's P/S?

Gaush Meditech's recently weak share price has pulled its P/S back below other Medical Equipment companies.      It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As expected, our analysis of Gaush Meditech's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor 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.    

We don't want to rain on the parade too much, but we did also find 2 warning signs for Gaush Meditech that you need to be mindful of.  

If you're unsure about the strength of Gaush Meditech'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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