With a price-to-sales (or "P/S") ratio of 2.8x Suzhou Basecare Medical Corporation Limited (HKG:2170) may be sending bullish signals at the moment, given that almost half of all the Medical Equipment companies in Hong Kong have P/S ratios greater than 5.2x and even P/S higher than 9x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Suzhou Basecare Medical

How Has Suzhou Basecare Medical Performed Recently?

Recent times have been advantageous for Suzhou Basecare Medical as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Suzhou Basecare Medical.

How Is Suzhou Basecare Medical's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Suzhou Basecare Medical's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 44% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 179% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 16% per annum as estimated by the lone analyst watching the company. That's shaping up to be materially lower than the 24% per year growth forecast for the broader industry.

With this in consideration, its clear as to why Suzhou Basecare Medical'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.

What Does Suzhou Basecare Medical's P/S Mean For Investors?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As expected, our analysis of Suzhou Basecare Medical'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. The company will need a change of fortune to justify the P/S rising higher in the future.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Suzhou Basecare Medical you should know about.

If you're unsure about the strength of Suzhou Basecare Medical'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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