Yahoo Finance Improved Revenues Required Before Medtecs International Corporation Limited (Catalist:546) Stock's 57% Jump Looks Justified
The Medtecs International Corporation Limited (Catalist:546) share price has done very well over the last month, posting an excellent gain of 57%. The last 30 days bring the annual gain to a very sharp 39%.
Although its price has surged higher, Medtecs International may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.6x, considering almost half of all companies in the Medical Equipment industry in Singapore have P/S ratios greater than 3.5x and even P/S higher than 9x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for Medtecs International
What Does Medtecs International's Recent Performance Look Like?
As an illustration, revenue has deteriorated at Medtecs International over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.
Although there are no analyst estimates available for Medtecs International, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
How Is Medtecs International's Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as low as Medtecs International's is when the company's growth is on track to lag the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 43%. The last three years don't look nice either as the company has shrunk revenue by 74% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
In contrast to the company, the rest of the industry is expected to grow by 23% over the next year, which really puts the company's recent medium-term revenue decline into perspective.
In light of this, it's understandable that Medtecs International's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.
The Key Takeaway
Medtecs International's stock price has surged recently, but its but its P/S still remains modest. 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.
Our examination of Medtecs International confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected 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.
It is also worth noting that we have found 2 warning signs for Medtecs International (1 doesn't sit too well with us!) that you need to take into consideration.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.
