Subdued Growth No Barrier To Bio-Thera Solutions, Ltd. (SHSE:688177) With Shares Advancing 30%

Bio-Thera Solutions, Ltd. (SHSE:688177) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. The last 30 days bring the annual gain to a very sharp 51%.

Following the firm bounce in price, you could be forgiven for thinking Bio-Thera Solutions is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 22.5x, considering almost half the companies in China's Biotechs industry have P/S ratios below 7.5x. 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.

See our latest analysis for Bio-Thera Solutions

How Has Bio-Thera Solutions Performed Recently?

With revenue growth that's exceedingly strong of late, Bio-Thera Solutions has been doing very well. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Bio-Thera Solutions' earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

Bio-Thera Solutions' 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.

Taking a look back first, we see that the company grew revenue by an impressive 55% last year. The latest three year period has also seen an excellent 287% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 163% shows it's noticeably less attractive.

In light of this, it's alarming that Bio-Thera Solutions' P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On Bio-Thera Solutions' P/S

Shares in Bio-Thera Solutions have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

The fact that Bio-Thera Solutions currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Bio-Thera Solutions you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.