Xiangxue Pharmaceutical Co.,Ltd. (SZSE:300147) Not Doing Enough For Some Investors As Its Shares Slump 43%

Xiangxue Pharmaceutical Co.,Ltd. (SZSE:300147) shareholders that were waiting for something to happen have been dealt a blow with a 43% share price drop in the last month. Looking at the bigger picture, even after this poor month the stock is up 28% in the last year.

Since its price has dipped substantially, Xiangxue PharmaceuticalLtd may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.8x, considering almost half of all companies in the Pharmaceuticals industry in China have P/S ratios greater than 3.5x 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.

Check out our latest analysis for Xiangxue PharmaceuticalLtd

What Does Xiangxue PharmaceuticalLtd's Recent Performance Look Like?

For instance, Xiangxue PharmaceuticalLtd's 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. If you 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.

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 Xiangxue PharmaceuticalLtd's earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

Xiangxue PharmaceuticalLtd'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.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 3.0%. As a result, revenue from three years ago have also fallen 25% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 64% shows it's an unpleasant look.

With this information, we are not surprised that Xiangxue PharmaceuticalLtd is trading at a P/S lower than the industry. 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.

What Does Xiangxue PharmaceuticalLtd's P/S Mean For Investors?

Xiangxue PharmaceuticalLtd's P/S has taken a dip along with its share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Xiangxue PharmaceuticalLtd 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.

You should always think about risks. Case in point, we've spotted 3 warning signs for Xiangxue PharmaceuticalLtd 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).

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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.