Qinghai Spring Medicinal Resources Technology Co., Ltd.'s (SHSE:600381) 26% Cheaper Price Remains In Tune With Revenues

Qinghai Spring Medicinal Resources Technology Co., Ltd. (SHSE:600381) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 56% loss during that time.

Even after such a large drop in price, given around half the companies in China's Pharmaceuticals industry have price-to-sales ratios (or "P/S") below 3.6x, you may still consider Qinghai Spring Medicinal Resources Technology as a stock to avoid entirely with its 9x 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 so lofty.

View our latest analysis for Qinghai Spring Medicinal Resources Technology

How Qinghai Spring Medicinal Resources Technology Has Been Performing

Recent times have been quite advantageous for Qinghai Spring Medicinal Resources Technology as its revenue has been rising very briskly. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Qinghai Spring Medicinal Resources Technology will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Qinghai Spring Medicinal Resources Technology?

The only time you'd be truly comfortable seeing a P/S as steep as Qinghai Spring Medicinal Resources Technology's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 71%. Pleasingly, revenue has also lifted 84% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 18% shows it's noticeably more attractive.

In light of this, it's understandable that Qinghai Spring Medicinal Resources Technology's P/S sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What Does Qinghai Spring Medicinal Resources Technology's P/S Mean For Investors?

A significant share price dive has done very little to deflate Qinghai Spring Medicinal Resources Technology's very lofty P/S. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Qinghai Spring Medicinal Resources Technology revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Qinghai Spring Medicinal Resources Technology is showing 2 warning signs in our investment analysis, and 1 of those is concerning.

If these risks are making you reconsider your opinion on Qinghai Spring Medicinal Resources Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.