Shaanxi Meibang Pharmaceutical Group Co., Ltd.'s (SHSE:605033) Popularity With Investors Under Threat As Stock Sinks 27%

The Shaanxi Meibang Pharmaceutical Group Co., Ltd. (SHSE:605033) share price has softened a substantial 27% over the previous 30 days, handing back much of the gains the stock has made lately. Looking at the bigger picture, even after this poor month the stock is up 77% in the last year.

Even after such a large drop in price, when almost half of the companies in China's Chemicals industry have price-to-sales ratios (or "P/S") below 2.3x, you may still consider Shaanxi Meibang Pharmaceutical Group as a stock probably not worth researching with its 3.6x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for Shaanxi Meibang Pharmaceutical Group

What Does Shaanxi Meibang Pharmaceutical Group's P/S Mean For Shareholders?

For example, consider that Shaanxi Meibang Pharmaceutical Group's financial performance has been pretty ordinary lately as revenue growth is non-existent. It might be that many are expecting an improvement to the uninspiring revenue performance over the coming period, which has kept the P/S from collapsing. If not, then existing shareholders may be a little nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shaanxi Meibang Pharmaceutical Group's earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Shaanxi Meibang Pharmaceutical Group would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Fortunately, a few good years before that means that it was still able to grow revenue by 8.9% in total over the last three years. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 24% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we find it concerning that Shaanxi Meibang Pharmaceutical Group is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What Does Shaanxi Meibang Pharmaceutical Group's P/S Mean For Investors?

Shaanxi Meibang Pharmaceutical Group's P/S remain high even after its stock plunged. 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.

The fact that Shaanxi Meibang Pharmaceutical Group currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

There are also other vital risk factors to consider and we've discovered 5 warning signs for Shaanxi Meibang Pharmaceutical Group (2 shouldn't be ignored!) that you should be aware of before investing here.

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

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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.