Investors Appear Satisfied With Beijing Hotgen Biotech Co., Ltd.'s (SHSE:688068) Prospects As Shares Rocket 68%

Beijing Hotgen Biotech Co., Ltd. (SHSE:688068) shareholders have had their patience rewarded with a 68% share price jump in the last month. The last month tops off a massive increase of 216% in the last year.

After such a large jump in price, given around half the companies in China's Life Sciences industry have price-to-sales ratios (or "P/S") below 5.2x, you may consider Beijing Hotgen Biotech as a stock to avoid entirely with its 16.9x 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.

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Check out our latest analysis for Beijing Hotgen Biotech

How Has Beijing Hotgen Biotech Performed Recently?

While the industry has experienced revenue growth lately, Beijing Hotgen Biotech's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Beijing Hotgen Biotech will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The High P/S?

Beijing Hotgen Biotech's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than 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%. As a result, revenue from three years ago have also fallen 90% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 28% over the next year. With the industry only predicted to deliver 16%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Beijing Hotgen Biotech's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Beijing Hotgen Biotech's P/S Mean For Investors?

Shares in Beijing Hotgen Biotech have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 into Beijing Hotgen Biotech shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Beijing Hotgen Biotech that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.