Shenzhen Chipscreen Biosciences Co., Ltd.'s (SHSE:688321) 50% Price Boost Is Out Of Tune With Revenues

The Shenzhen Chipscreen Biosciences Co., Ltd. (SHSE:688321) share price has done very well over the last month, posting an excellent gain of 50%. Unfortunately, despite the strong performance over the last month, the full year gain of 7.2% isn't as attractive.

After such a large jump in price, given around half the companies in China's Pharmaceuticals industry have price-to-sales ratios (or "P/S") below 3.5x, you may consider Shenzhen Chipscreen Biosciences as a stock to avoid entirely with its 16.8x 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.

See our latest analysis for Shenzhen Chipscreen Biosciences

How Has Shenzhen Chipscreen Biosciences Performed Recently?

Recent times haven't been great for Shenzhen Chipscreen Biosciences as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. If not, then existing shareholders may be very nervous about the viability of the share price.

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

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

Shenzhen Chipscreen Biosciences' 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.

Retrospectively, the last year delivered a decent 5.2% gain to the company's revenues. The latest three year period has also seen an excellent 71% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 40% during the coming year according to the lone analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 141%, which is noticeably more attractive.

In light of this, it's alarming that Shenzhen Chipscreen Biosciences' P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Shenzhen Chipscreen Biosciences' P/S

Shenzhen Chipscreen Biosciences' P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Shenzhen Chipscreen Biosciences, this doesn't appear to be impacting the P/S in the slightest. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. At these price levels, investors should remain cautious, particularly if things don't improve.

Plus, you should also learn about this 1 warning sign we've spotted with Shenzhen Chipscreen Biosciences.

If these risks are making you reconsider your opinion on Shenzhen Chipscreen Biosciences, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.