Staidson (Beijing) BioPharmaceuticals Co., Ltd. (SZSE:300204) Stock Rockets 47% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, Staidson (Beijing) BioPharmaceuticals Co., Ltd. (SZSE:300204) shares have been powering on, with a gain of 47% in the last thirty days. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 8.5% in the last twelve months.

After such a large jump in price, you could be forgiven for thinking Staidson (Beijing) BioPharmaceuticals is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 11.5x, considering almost half the companies in China's Biotechs industry have P/S ratios below 7x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Staidson (Beijing) BioPharmaceuticals

What Does Staidson (Beijing) BioPharmaceuticals' Recent Performance Look Like?

For example, consider that Staidson (Beijing) BioPharmaceuticals' financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

Although there are no analyst estimates available for Staidson (Beijing) BioPharmaceuticals, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Staidson (Beijing) BioPharmaceuticals' Revenue Growth Trending?

Staidson (Beijing) BioPharmaceuticals' 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.

Retrospectively, the last year delivered a frustrating 20% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 29% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 230% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we find it worrying that Staidson (Beijing) BioPharmaceuticals' P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Bottom Line On Staidson (Beijing) BioPharmaceuticals' P/S

Shares in Staidson (Beijing) BioPharmaceuticals have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 Staidson (Beijing) BioPharmaceuticals revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 2 warning signs for Staidson (Beijing) BioPharmaceuticals that you need to take into consideration.

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.