Luoxin Pharmaceuticals Group Stock Co., Ltd. (SZSE:002793) Held Back By Insufficient Growth Even After Shares Climb 41%

Luoxin Pharmaceuticals Group Stock Co., Ltd. (SZSE:002793) shareholders would be excited to see that the share price has had a great month, posting a 41% gain and recovering from prior weakness. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 6.7% in the last twelve months.

Even after such a large jump in price, Luoxin Pharmaceuticals Group Stock may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 2.2x, considering almost half of all companies in the Pharmaceuticals industry in China have P/S ratios greater than 3.4x and even P/S higher than 7x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Luoxin Pharmaceuticals Group Stock

What Does Luoxin Pharmaceuticals Group Stock's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, Luoxin Pharmaceuticals Group Stock has been doing very well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Luoxin Pharmaceuticals Group Stock will help you shine a light on its historical performance.

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

Luoxin Pharmaceuticals Group Stock's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered an exceptional 39% gain to the company's top line. Still, revenue has fallen 65% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 142% shows it's an unpleasant look.

With this in mind, we understand why Luoxin Pharmaceuticals Group Stock's P/S is lower than most of its industry peers. 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.

The Bottom Line On Luoxin Pharmaceuticals Group Stock's P/S

The latest share price surge wasn't enough to lift Luoxin Pharmaceuticals Group Stock's P/S close to the industry median. 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.

Our examination of Luoxin Pharmaceuticals Group Stock confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. 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.

Before you take the next step, you should know about the 2 warning signs for Luoxin Pharmaceuticals Group Stock that we have uncovered.

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.