Concord Medical Services Holdings Limited (NYSE:CCM) Could Be Riskier Than It Looks
With a median price-to-sales (or "P/S") ratio of close to 1.3x in the Healthcare industry in the United States, you could be forgiven for feeling indifferent about Concord Medical Services Holdings Limited's (NYSE:CCM) P/S ratio of 0.9x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
View our latest analysis for Concord Medical Services Holdings
How Concord Medical Services Holdings Has Been Performing
As an illustration, revenue has deteriorated at Concord Medical Services Holdings over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Concord Medical Services Holdings will help you shine a light on its historical performance.
How Is Concord Medical Services Holdings' Revenue Growth Trending?
The only time you'd be comfortable seeing a P/S like Concord Medical Services Holdings' is when the company's growth is tracking the industry closely.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 2.8%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 138% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.
Comparing that to the industry, which is only predicted to deliver 8.7% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.
With this information, we find it interesting that Concord Medical Services Holdings is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.
The Bottom Line On Concord Medical Services Holdings' P/S
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.
To our surprise, Concord Medical Services Holdings revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.
And what about other risks? Every company has them, and we've spotted 4 warning signs for Concord Medical Services Holdings (of which 2 are a bit concerning!) you should know about.
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.
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