COFCO Biotechnology Co., Ltd. (SZSE:000930) Surges 39% Yet Its Low P/S Is No Reason For Excitement

COFCO Biotechnology Co., Ltd. (SZSE:000930) shareholders would be excited to see that the share price has had a great month, posting a 39% gain and recovering from prior weakness. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 6.8% in the last twelve months.

Even after such a large jump in price, when close to half the companies operating in China's Chemicals industry have price-to-sales ratios (or "P/S") above 2.1x, you may still consider COFCO Biotechnology as an enticing stock to check out with its 0.6x 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 limited.

Check out our latest analysis for COFCO Biotechnology

How Has COFCO Biotechnology Performed Recently?

COFCO Biotechnology certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on COFCO Biotechnology.

Is There Any Revenue Growth Forecasted For COFCO Biotechnology?

COFCO Biotechnology's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 13%. Still, lamentably revenue has fallen 7.3% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 2.1% during the coming year according to the lone analyst following the company. With the industry predicted to deliver 21% growth, that's a disappointing outcome.

With this in consideration, we find it intriguing that COFCO Biotechnology's P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From COFCO Biotechnology's P/S?

The latest share price surge wasn't enough to lift COFCO Biotechnology's P/S close to the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that COFCO Biotechnology's P/S is on the lower end of the spectrum. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for COFCO Biotechnology with six simple checks.

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.