Insufficient Growth At HARBIN GLORIA PHARMACEUTICALS Co., LTD (SZSE:002437) Hampers Share Price

With a price-to-sales (or "P/S") ratio of 1.7x HARBIN GLORIA PHARMACEUTICALS Co., LTD (SZSE:002437) 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 3x and even P/S higher than 6x are not unusual. 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' Recent Performance Look Like?

For instance, HARBIN GLORIA PHARMACEUTICALS' receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate 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 HARBIN GLORIA PHARMACEUTICALS' earnings, revenue and cash flow.

How Is HARBIN GLORIA PHARMACEUTICALS' Revenue Growth Trending?

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 16% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 20% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 18% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's understandable that HARBIN GLORIA PHARMACEUTICALS' P/S would sit below the majority of other companies. 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. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Final Word

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of HARBIN GLORIA PHARMACEUTICALS revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 2 warning signs we've spotted with HARBIN GLORIA PHARMACEUTICALS.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com