ShanXi C&Y Pharmaceutical Group Co.,LTD.'s (SZSE:300254) 36% Price Boost Is Out Of Tune With Revenues

Despite an already strong run, ShanXi C&Y Pharmaceutical Group Co.,LTD. (SZSE:300254) shares have been powering on, with a gain of 36% in the last thirty days. The last 30 days bring the annual gain to a very sharp 82%.

In spite of the firm bounce in price, there still wouldn't be many who think ShanXi C&Y Pharmaceutical GroupLTD's price-to-sales (or "P/S") ratio of 3.6x is worth a mention when the median P/S in China's Pharmaceuticals industry is similar at about 3.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for ShanXi C&Y Pharmaceutical GroupLTD

What Does ShanXi C&Y Pharmaceutical GroupLTD's Recent Performance Look Like?

For instance, ShanXi C&Y Pharmaceutical GroupLTD's receding revenue in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for ShanXi C&Y Pharmaceutical GroupLTD, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is ShanXi C&Y Pharmaceutical GroupLTD's Revenue Growth Trending?

ShanXi C&Y Pharmaceutical GroupLTD's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 1.8%. The last three years don't look nice either as the company has shrunk revenue by 12% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 19% shows it's an unpleasant look.

With this in mind, we find it worrying that ShanXi C&Y Pharmaceutical GroupLTD's 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 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 Final Word

Its shares have lifted substantially and now ShanXi C&Y Pharmaceutical GroupLTD's P/S is back within range of the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look at ShanXi C&Y Pharmaceutical GroupLTD revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

You need to take note of risks, for example - ShanXi C&Y Pharmaceutical GroupLTD has 2 warning signs (and 1 which is potentially serious) we think you should know about.

If these risks are making you reconsider your opinion on ShanXi C&Y Pharmaceutical GroupLTD, 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.