JiangSu WuZhong Pharmaceutical Development Co., Ltd.'s (SHSE:600200) Shares Lagging The Industry But So Is The Business

JiangSu WuZhong Pharmaceutical Development Co., Ltd.'s (SHSE:600200) price-to-sales (or "P/S") ratio of 2.4x might make it look like a buy right now compared to the Pharmaceuticals industry in China, where around half of the companies have P/S ratios above 3.4x and even P/S above 7x 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.

See our latest analysis for JiangSu WuZhong Pharmaceutical Development

What Does JiangSu WuZhong Pharmaceutical Development's P/S Mean For Shareholders?

Recent times haven't been great for JiangSu WuZhong Pharmaceutical Development as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Keen to find out how analysts think JiangSu WuZhong Pharmaceutical Development's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

JiangSu WuZhong Pharmaceutical Development'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.

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. Revenue has also lifted 28% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 24% as estimated by the five analysts watching the company. With the industry predicted to deliver 217% growth, the company is positioned for a weaker revenue result.

With this information, we can see why JiangSu WuZhong Pharmaceutical Development is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As expected, our analysis of JiangSu WuZhong Pharmaceutical Development's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for JiangSu WuZhong Pharmaceutical Development with six simple checks on some of these key factors.

If you're unsure about the strength of JiangSu WuZhong Pharmaceutical Development's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.