Walvax Biotechnology Co., Ltd.'s (SZSE:300142) Prospects Need A Boost To Lift Shares

You may think that with a price-to-sales (or "P/S") ratio of 5.8x Walvax Biotechnology Co., Ltd. (SZSE:300142) is a stock worth checking out, seeing as almost half of all the Biotechs companies in China have P/S ratios greater than 7.3x and even P/S higher than 14x aren't out of the ordinary. 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 Walvax Biotechnology

What Does Walvax Biotechnology's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Walvax Biotechnology's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still 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.

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

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 Walvax Biotechnology's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 26% decrease to the company's top line. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 19% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 14% over the next year. With the industry predicted to deliver 297% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Walvax Biotechnology's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

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.

As expected, our analysis of Walvax Biotechnology's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

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

If these risks are making you reconsider your opinion on Walvax Biotechnology, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.