There's No Escaping Guizhou Bailing Group Pharmaceutical Co., Ltd.'s (SZSE:002424) Muted Revenues Despite A 26% Share Price Rise

Guizhou Bailing Group Pharmaceutical Co., Ltd. (SZSE:002424) shareholders have had their patience rewarded with a 26% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 48% in the last twelve months.

Even after such a large jump in price, Guizhou Bailing Group Pharmaceutical may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.4x, since almost half of all companies in the Pharmaceuticals industry in China have P/S ratios greater than 3.9x and even P/S higher than 8x 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 so limited.

See our latest analysis for Guizhou Bailing Group Pharmaceutical

What Does Guizhou Bailing Group Pharmaceutical's Recent Performance Look Like?

We'd have to say that with no tangible growth over the last year, Guizhou Bailing Group Pharmaceutical's revenue has been unimpressive. One possibility is that the P/S is low because investors think this benign revenue growth rate will likely underperform the broader industry in the near future. If not, then existing shareholders may be feeling optimistic about the future direction 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 Guizhou Bailing Group Pharmaceutical's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Guizhou Bailing Group Pharmaceutical?

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

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Although pleasingly revenue has lifted 39% in aggregate from three years ago, notwithstanding the last 12 months. 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.

Comparing that to the industry, which is predicted to deliver 217% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we can see why Guizhou Bailing Group Pharmaceutical is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Even after such a strong price move, Guizhou Bailing Group Pharmaceutical's P/S still trails the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Guizhou Bailing Group Pharmaceutical revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Guizhou Bailing Group Pharmaceutical you should know about.

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.