Market Participants Recognise Jiangsu Aidea Pharmaceutical Co., Ltd.'s (SHSE:688488) Revenues Pushing Shares 28% Higher

Jiangsu Aidea Pharmaceutical Co., Ltd. (SHSE:688488) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 34% in the last twelve months.

After such a large jump in price, given close to half the companies operating in China's Biotechs industry have price-to-sales ratios (or "P/S") below 6.9x, you may consider Jiangsu Aidea Pharmaceutical as a stock to potentially avoid with its 9.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for Jiangsu Aidea Pharmaceutical

How Has Jiangsu Aidea Pharmaceutical Performed Recently?

With revenue growth that's inferior to most other companies of late, Jiangsu Aidea Pharmaceutical has been relatively sluggish. 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.

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

Is There Enough Revenue Growth Forecasted For Jiangsu Aidea Pharmaceutical?

Jiangsu Aidea Pharmaceutical's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Still, the latest three year period has seen an excellent 64% overall rise in revenue, in spite of its uninspiring short-term performance. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

Looking ahead now, revenue is anticipated to climb by 106% during the coming year according to the lone analyst following the company. With the industry only predicted to deliver 45%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Jiangsu Aidea Pharmaceutical's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Jiangsu Aidea Pharmaceutical shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Jiangsu Aidea Pharmaceutical maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Biotechs 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.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Jiangsu Aidea Pharmaceutical that you need to be mindful of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.