There's No Escaping Kaisa Health Group Holdings Limited's (HKG:876) Muted Revenues Despite A 27% Share Price Rise

Kaisa Health Group Holdings Limited (HKG:876) shares have continued their recent momentum with a 27% gain in the last month alone. The last 30 days were the cherry on top of the stock's 323% gain in the last year, which is nothing short of spectacular.

Even after such a large jump in price, Kaisa Health Group Holdings' price-to-sales (or "P/S") ratio of 2.8x might still make it look like a buy right now compared to the Medical Equipment industry in Hong Kong, where around half of the companies have P/S ratios above 5.2x and even P/S above 10x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

See our latest analysis for Kaisa Health Group Holdings

What Does Kaisa Health Group Holdings' P/S Mean For Shareholders?

For example, consider that Kaisa Health Group Holdings' financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Is There Any Revenue Growth Forecasted For Kaisa Health Group Holdings?

In order to justify its P/S ratio, Kaisa Health Group Holdings would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 8.5% decrease to the company's top line. As a result, revenue from three years ago have also fallen 17% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 43% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we understand why Kaisa Health Group Holdings' P/S is lower than most of its industry peers. 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.

What We Can Learn From Kaisa Health Group Holdings' P/S?

The latest share price surge wasn't enough to lift Kaisa Health Group Holdings' P/S close to the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

It's no surprise that Kaisa Health Group Holdings maintains its low P/S off the back of its sliding revenue over the medium-term. 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.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Kaisa Health Group Holdings (1 can't be ignored!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Kaisa Health Group Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.