HOB Biotech Group Corp.,Ltd's (SHSE:688656) Popularity With Investors Under Threat As Stock Sinks 29%

The HOB Biotech Group Corp.,Ltd (SHSE:688656) share price has softened a substantial 29% over the previous 30 days, handing back much of the gains the stock has made lately. The good news is that in the last year, the stock has shone bright like a diamond, gaining 183%.

Even after such a large drop in price, when almost half of the companies in China's Biotechs industry have price-to-sales ratios (or "P/S") below 7.2x, you may still consider HOB Biotech GroupLtd as a stock not worth researching with its 15.1x 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.

View our latest analysis for HOB Biotech GroupLtd

How Has HOB Biotech GroupLtd Performed Recently?

Revenue has risen firmly for HOB Biotech GroupLtd recently, which is pleasing to see. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. If not, then existing shareholders may be a little nervous about the viability of the share price.

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 HOB Biotech GroupLtd's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For HOB Biotech GroupLtd?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like HOB Biotech GroupLtd's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 9.7%. The solid recent performance means it was also able to grow revenue by 28% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing that to the industry, which is predicted to deliver 56% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's alarming that HOB Biotech GroupLtd's 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.

What We Can Learn From HOB Biotech GroupLtd's P/S?

HOB Biotech GroupLtd's shares may have suffered, but its P/S remains high. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of HOB Biotech GroupLtd revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

You always need to take note of risks, for example - HOB Biotech GroupLtd has 2 warning signs we think you should be aware of.

If you're unsure about the strength of HOB Biotech GroupLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.