Guangzheng Eye Hospital Group Co., Ltd. (SZSE:002524) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 36% over that time.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Guangzheng Eye Hospital Group's P/S ratio of 2.3x, since the median price-to-sales (or "P/S") ratio for the Healthcare industry in China is also close to 1.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Has Guangzheng Eye Hospital Group Performed Recently?

Guangzheng Eye Hospital Group has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Is There Some Revenue Growth Forecasted For Guangzheng Eye Hospital Group?

Guangzheng Eye Hospital Group's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered an exceptional 22% gain to the company's top line. Revenue has also lifted 12% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 18% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Guangzheng Eye Hospital Group's P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From Guangzheng Eye Hospital Group's P/S?

Guangzheng Eye Hospital Group appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Guangzheng Eye Hospital Group revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Guangzheng Eye Hospital Group that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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