Getting In Cheap On Nanjing King-Friend Biochemical Pharmaceutical Co.,Ltd. (SHSE:603707) Might Be Difficult

When you see that almost half of the companies in the Pharmaceuticals industry in China have price-to-sales ratios (or "P/S") below 3.4x, Nanjing King-Friend Biochemical Pharmaceutical Co.,Ltd. (SHSE:603707) looks to be giving off strong sell signals with its 5.9x 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.

View our latest analysis for Nanjing King-Friend Biochemical PharmaceuticalLtd

How Nanjing King-Friend Biochemical PharmaceuticalLtd Has Been Performing

Nanjing King-Friend Biochemical PharmaceuticalLtd could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Nanjing King-Friend Biochemical PharmaceuticalLtd.

How Is Nanjing King-Friend Biochemical PharmaceuticalLtd's Revenue Growth Trending?

In order to justify its P/S ratio, Nanjing King-Friend Biochemical PharmaceuticalLtd would need to produce outstanding growth that's well in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.6%. Regardless, revenue has managed to lift by a handy 18% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 30% as estimated by the four analysts watching the company. With the industry only predicted to deliver 19%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Nanjing King-Friend Biochemical PharmaceuticalLtd's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

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.

We've established that Nanjing King-Friend Biochemical PharmaceuticalLtd maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Pharmaceuticals industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Nanjing King-Friend Biochemical PharmaceuticalLtd you should know about.

If you're unsure about the strength of Nanjing King-Friend Biochemical PharmaceuticalLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.