Shanghai MicuRx Pharmaceutical Co., Ltd.'s (SHSE:688373) Shares Climb 30% But Its Business Is Yet to Catch Up

Despite an already strong run, Shanghai MicuRx Pharmaceutical Co., Ltd. (SHSE:688373) shares have been powering on, with a gain of 30% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 14% in the last twelve months.

After such a large jump in price, when almost half of the companies in China's Biotechs industry have price-to-sales ratios (or "P/S") below 7.6x, you may consider Shanghai MicuRx Pharmaceutical as a stock not worth researching with its 33.7x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Shanghai MicuRx Pharmaceutical

How Has Shanghai MicuRx Pharmaceutical Performed Recently?

Shanghai MicuRx Pharmaceutical could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Shanghai MicuRx Pharmaceutical?

The only time you'd be truly comfortable seeing a P/S as steep as Shanghai MicuRx Pharmaceutical's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 47% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 60% per year during the coming three years according to the lone analyst following the company. That's shaping up to be materially lower than the 177% each year growth forecast for the broader industry.

With this information, we find it concerning that Shanghai MicuRx Pharmaceutical is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does Shanghai MicuRx Pharmaceutical's P/S Mean For Investors?

Shares in Shanghai MicuRx Pharmaceutical have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Shanghai MicuRx Pharmaceutical, this doesn't appear to be impacting the P/S in the slightest. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Shanghai MicuRx Pharmaceutical that 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.