Lionco Pharmaceutical Group Co.,Ltd. (SHSE:603669) Stock Rockets 26% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, Lionco Pharmaceutical Group Co.,Ltd. (SHSE:603669) shares have been powering on, with a gain of 26% in the last thirty days. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 2.5% in the last twelve months.

Since its price has surged higher, given around half the companies in China's Pharmaceuticals industry have price-to-sales ratios (or "P/S") below 3.7x, you may consider Lionco Pharmaceutical GroupLtd as a stock to avoid entirely with its 17.4x 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.

See our latest analysis for Lionco Pharmaceutical GroupLtd

What Does Lionco Pharmaceutical GroupLtd's P/S Mean For Shareholders?

For instance, Lionco Pharmaceutical GroupLtd's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Lionco Pharmaceutical GroupLtd will help you shine a light on its historical performance.

How Is Lionco Pharmaceutical GroupLtd's Revenue Growth Trending?

In order to justify its P/S ratio, Lionco Pharmaceutical GroupLtd would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a frustrating 15% decrease to the company's top line. As a result, revenue from three years ago have also fallen 80% overall. Accordingly, shareholders would have felt downbeat about the 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 downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's alarming that Lionco Pharmaceutical GroupLtd's P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Bottom Line On Lionco Pharmaceutical GroupLtd's P/S

The strong share price surge has lead to Lionco Pharmaceutical GroupLtd's P/S soaring as well. 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.

Our examination of Lionco Pharmaceutical GroupLtd revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You always need to take note of risks, for example - Lionco Pharmaceutical GroupLtd has 1 warning sign we think you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.