Subdued Growth No Barrier To Lionco Pharmaceutical Group Co.,Ltd. (SHSE:603669) With Shares Advancing 30%

Despite an already strong run, Lionco Pharmaceutical Group Co.,Ltd. (SHSE:603669) shares have been powering on, with a gain of 30% in the last thirty days. Looking further back, the 10% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

After such a large jump 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 consider Lionco Pharmaceutical GroupLtd as a stock to avoid entirely with its 15.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Lionco Pharmaceutical GroupLtd

What Does Lionco Pharmaceutical GroupLtd's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Lionco Pharmaceutical GroupLtd has been doing very well. 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Lionco Pharmaceutical GroupLtd's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Lionco Pharmaceutical GroupLtd?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Lionco Pharmaceutical GroupLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 47% gain to the company's top line. Still, revenue has fallen 69% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 225% shows it's an unpleasant look.

With this in mind, we find it worrying that Lionco Pharmaceutical GroupLtd's P/S exceeds that of its industry peers. 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 Final Word

Shares in Lionco Pharmaceutical GroupLtd have seen a strong upwards swing lately, which has really helped boost its P/S figure. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

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.

Having said that, be aware Lionco Pharmaceutical GroupLtd is showing 1 warning sign in our investment analysis, you should know about.

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.