Beijing Aosaikang Pharmaceutical Co., Ltd.'s (SZSE:002755) Shares Climb 25% But Its Business Is Yet to Catch Up

Beijing Aosaikang Pharmaceutical Co., Ltd. (SZSE:002755) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 64%.

After such a large jump in price, given around half the companies in China's Pharmaceuticals industry have price-to-sales ratios (or "P/S") below 3.5x, you may consider Beijing Aosaikang Pharmaceutical as a stock to avoid entirely with its 8.8x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Beijing Aosaikang Pharmaceutical

What Does Beijing Aosaikang Pharmaceutical's P/S Mean For Shareholders?

Beijing Aosaikang Pharmaceutical could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. If not, then existing shareholders may be very nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For Beijing Aosaikang Pharmaceutical?

Beijing Aosaikang Pharmaceutical's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 15%. However, this wasn't enough as the latest three year period has seen an unpleasant 51% overall drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 14% as estimated by the one analyst watching the company. With the industry predicted to deliver 91% growth, the company is positioned for a weaker revenue result.

With this in consideration, we believe it doesn't make sense that Beijing Aosaikang Pharmaceutical's P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Beijing Aosaikang Pharmaceutical's P/S

The strong share price surge has lead to Beijing Aosaikang Pharmaceutical's P/S soaring as well. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Beijing Aosaikang Pharmaceutical, this doesn't appear to be impacting the P/S in the slightest. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Beijing Aosaikang Pharmaceutical that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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

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.