Vcanbio Cell & Gene Engineering Corp., Ltd's (SHSE:600645) Popularity With Investors Is Under Threat From Overpricing

With a median price-to-sales (or "P/S") ratio of close to 5.7x in the Biotechs industry in China, you could be forgiven for feeling indifferent about Vcanbio Cell & Gene Engineering Corp., Ltd's (SHSE:600645) P/S ratio of 5.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Vcanbio Cell & Gene Engineering

What Does Vcanbio Cell & Gene Engineering's P/S Mean For Shareholders?

Recent times haven't been great for Vcanbio Cell & Gene Engineering as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Want the full picture on analyst estimates for the company? Then our free report on Vcanbio Cell & Gene Engineering will help you uncover what's on the horizon.

How Is Vcanbio Cell & Gene Engineering's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Vcanbio Cell & Gene Engineering's to be considered reasonable.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Still, the latest three year period was better as it's delivered a decent 8.6% overall rise in revenue. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 13% over the next year. That's shaping up to be materially lower than the 222% growth forecast for the broader industry.

With this in mind, we find it intriguing that Vcanbio Cell & Gene Engineering's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What Does Vcanbio Cell & Gene Engineering's P/S Mean For Investors?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look at the analysts forecasts of Vcanbio Cell & Gene Engineering's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Vcanbio Cell & Gene Engineering with six simple checks will allow you to discover any risks that could be an issue.

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.