There's No Escaping Kexing Biopharm Co., Ltd.'s (SHSE:688136) Muted Revenues Despite A 36% Share Price Rise

Kexing Biopharm Co., Ltd. (SHSE:688136) shares have had a really impressive month, gaining 36% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 9.6% isn't as attractive.

Although its price has surged higher, Kexing Biopharm may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 2.8x, considering almost half of all companies in the Biotechs industry in China have P/S ratios greater than 7x and even P/S higher than 13x 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 Kexing Biopharm Has Been Performing

Kexing Biopharm could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

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

In order to justify its P/S ratio, Kexing Biopharm would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 2.6% last year. The latest three year period has also seen a 9.6% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 25% during the coming year according to the three analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 230%, which is noticeably more attractive.

In light of this, it's understandable that Kexing Biopharm's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Kexing Biopharm's P/S?

Even after such a strong price move, Kexing Biopharm's P/S still trails the rest of the industry. 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.

As expected, our analysis of Kexing Biopharm's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - Kexing Biopharm has 1 warning sign we think 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.