Some Shareholders Feeling Restless Over Shenzhen Hepalink Pharmaceutical Group Co., Ltd.'s (SZSE:002399) P/S Ratio

There wouldn't be many who think Shenzhen Hepalink Pharmaceutical Group Co., Ltd.'s (SZSE:002399) price-to-sales (or "P/S") ratio of 2.6x is worth a mention when the median P/S for the Pharmaceuticals industry in China is similar at about 2.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Shenzhen Hepalink Pharmaceutical Group

What Does Shenzhen Hepalink Pharmaceutical Group's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Shenzhen Hepalink Pharmaceutical Group's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

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

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

Retrospectively, the last year delivered a frustrating 16% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 6.2% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Turning to the outlook, the next year should generate growth of 4.9% as estimated by the one analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 18%, which is noticeably more attractive.

In light of this, it's curious that Shenzhen Hepalink Pharmaceutical Group's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From Shenzhen Hepalink Pharmaceutical Group's P/S?

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.

When you consider that Shenzhen Hepalink Pharmaceutical Group's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Shenzhen Hepalink Pharmaceutical Group with six simple checks on some of these key factors.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.