Kexing Biopharm Co., Ltd.'s (SHSE:688136) Share Price Boosted 36% But Its Business Prospects Need A Lift Too

The Kexing Biopharm Co., Ltd. (SHSE:688136) share price has done very well over the last month, posting an excellent gain of 36%. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Even after such a large jump in price, Kexing Biopharm may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 3x, considering almost half of all companies in the Biotechs industry in China have P/S ratios greater than 7.4x and even P/S higher than 14x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Kexing Biopharm

How Has Kexing Biopharm Performed Recently?

Kexing Biopharm could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Kexing Biopharm.

How Is Kexing Biopharm's Revenue Growth Trending?

Kexing Biopharm's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 5.2%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 13% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 24% over the next year. That's shaping up to be materially lower than the 295% growth forecast for the broader industry.

With this information, we can see why Kexing Biopharm is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does Kexing Biopharm's P/S Mean For Investors?

Shares in Kexing Biopharm have risen appreciably however, its P/S is still subdued. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Kexing Biopharm maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Kexing Biopharm with six simple checks on some of these key factors.

If you're unsure about the strength of Kexing Biopharm'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.