Market Cool On Shaanxi Kanghui Pharmaceutical Co., Ltd.'s (SHSE:603139) Revenues Pushing Shares 28% Lower

Shaanxi Kanghui Pharmaceutical Co., Ltd. (SHSE:603139) shares have had a horrible month, losing 28% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 23% share price drop.

Following the heavy fall in price, Shaanxi Kanghui Pharmaceutical's price-to-sales (or "P/S") ratio of 1.9x 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 3.2x and even P/S above 6x 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.

View our latest analysis for Shaanxi Kanghui Pharmaceutical

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

With revenue growth that's exceedingly strong of late, Shaanxi Kanghui Pharmaceutical has been doing very well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Although there are no analyst estimates available for Shaanxi Kanghui Pharmaceutical, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Shaanxi Kanghui Pharmaceutical's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Shaanxi Kanghui Pharmaceutical's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 36% last year. Pleasingly, revenue has also lifted 58% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 18% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

With this information, we find it odd that Shaanxi Kanghui Pharmaceutical is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can maintain recent growth rates.

The Bottom Line On Shaanxi Kanghui Pharmaceutical's P/S

Shaanxi Kanghui Pharmaceutical's P/S has taken a dip along with its share price. 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.

The fact that Shaanxi Kanghui Pharmaceutical currently trades at a low P/S relative to the industry is unexpected considering its recent three-year growth is in line with the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching the company's performance. While recent

Before you settle on your opinion, we've discovered 3 warning signs for Shaanxi Kanghui Pharmaceutical that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.