Revenues Tell The Story For BrightGene Bio-Medical Technology Co., Ltd. (SHSE:688166) As Its Stock Soars 25%

BrightGene Bio-Medical Technology Co., Ltd. (SHSE:688166) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 27%.

After such a large jump in price, when almost half of the companies in China's Pharmaceuticals industry have price-to-sales ratios (or "P/S") below 3.3x, you may consider BrightGene Bio-Medical Technology as a stock not worth researching with its 12.4x 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.

View our latest analysis for BrightGene Bio-Medical Technology

What Does BrightGene Bio-Medical Technology's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, BrightGene Bio-Medical Technology has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think BrightGene Bio-Medical Technology's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, BrightGene Bio-Medical Technology would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 8.7%. Revenue has also lifted 22% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 35% each year as estimated by the four analysts watching the company. With the industry only predicted to deliver 17% per annum, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why BrightGene Bio-Medical Technology's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

BrightGene Bio-Medical Technology's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 BrightGene Bio-Medical Technology 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. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with BrightGene Bio-Medical Technology.

If you're unsure about the strength of BrightGene Bio-Medical Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.