HARBIN GLORIA PHARMACEUTICALS Co., LTD (SZSE:002437) Surges 29% Yet Its Low P/S Is No Reason For Excitement

HARBIN GLORIA PHARMACEUTICALS Co., LTD (SZSE:002437) shares have continued their recent momentum with a 29% gain in the last month alone. Unfortunately, despite the strong performance over the last month, the full year gain of 6.6% isn't as attractive.

In spite of the firm bounce in price, HARBIN GLORIA PHARMACEUTICALS' price-to-sales (or "P/S") ratio of 2.6x might still make it look like a buy right now compared to the Pharmaceuticals industry in China, where around half of the companies have P/S ratios above 3.8x and even P/S above 8x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for HARBIN GLORIA PHARMACEUTICALS

What Does HARBIN GLORIA PHARMACEUTICALS' P/S Mean For Shareholders?

For example, consider that HARBIN GLORIA PHARMACEUTICALS' financial performance has been poor lately as its revenue has been in decline. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Although there are no analyst estimates available for HARBIN GLORIA PHARMACEUTICALS, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered a frustrating 11% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 23% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 216% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we are not surprised that HARBIN GLORIA PHARMACEUTICALS is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What We Can Learn From HARBIN GLORIA PHARMACEUTICALS' P/S?

HARBIN GLORIA PHARMACEUTICALS' stock price has surged recently, but its but its P/S still remains modest. 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.

It's no surprise that HARBIN GLORIA PHARMACEUTICALS maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Having said that, be aware HARBIN GLORIA PHARMACEUTICALS is showing 2 warning signs in our investment analysis, you should know about.

If you're unsure about the strength of HARBIN GLORIA PHARMACEUTICALS' 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.