Improved Revenues Required Before Yifan Pharmaceutical Co., Ltd. (SZSE:002019) Shares Find Their Feet

With a price-to-sales (or "P/S") ratio of 2.7x Yifan Pharmaceutical Co., Ltd. (SZSE:002019) may be sending bullish signals at the moment, given that almost half of all the Pharmaceuticals companies in China have P/S ratios greater than 3.4x and even P/S higher than 7x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Yifan Pharmaceutical

How Yifan Pharmaceutical Has Been Performing

Recent times haven't been great for Yifan Pharmaceutical as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Keen to find out how analysts think Yifan Pharmaceutical's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Revenue Growth Forecasted For Yifan Pharmaceutical?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Yifan Pharmaceutical's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 24% gain to the company's top line. Revenue has also lifted 7.3% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 22% as estimated by the dual analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 211%, which is noticeably more attractive.

With this in consideration, its clear as to why Yifan Pharmaceutical's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Yifan Pharmaceutical's P/S

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Yifan Pharmaceutical maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

You always need to take note of risks, for example - Yifan Pharmaceutical has 1 warning sign we think you should be aware 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.