Benign Growth For Lifecome Biochemistry Co.,Ltd. (SZSE:002868) Underpins Stock's 26% Plummet

To the annoyance of some shareholders, Lifecome Biochemistry Co.,Ltd. (SZSE:002868) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 56% loss during that time.

Since its price has dipped substantially, Lifecome BiochemistryLtd's price-to-sales (or "P/S") ratio of 4.6x might make it look like a buy right now compared to the Biotechs industry in China, where around half of the companies have P/S ratios above 6.6x and even P/S above 13x 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.

See our latest analysis for Lifecome BiochemistryLtd

What Does Lifecome BiochemistryLtd's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Lifecome BiochemistryLtd has been doing very well. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. 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 Lifecome BiochemistryLtd will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Lifecome BiochemistryLtd would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 43%. The latest three year period has also seen an excellent 52% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 179% shows it's noticeably less attractive.

With this in consideration, it's easy to understand why Lifecome BiochemistryLtd's P/S falls short of the mark set by its industry peers. 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.

What We Can Learn From Lifecome BiochemistryLtd's P/S?

The southerly movements of Lifecome BiochemistryLtd's shares means its P/S is now sitting at a pretty low level. 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 Lifecome BiochemistryLtd 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.

It is also worth noting that we have found 3 warning signs for Lifecome BiochemistryLtd (2 are concerning!) that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.