Beijing Leadman Biochemistry Co.,Ltd.'s (SZSE:300289) 44% Price Boost Is Out Of Tune With Revenues

Despite an already strong run, Beijing Leadman Biochemistry Co.,Ltd. (SZSE:300289) shares have been powering on, with a gain of 44% 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 4.2% in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think Beijing Leadman BiochemistryLtd's price-to-sales (or "P/S") ratio of 7.3x is worth a mention when the median P/S in China's Biotechs industry is similar at about 7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Beijing Leadman BiochemistryLtd

How Has Beijing Leadman BiochemistryLtd Performed Recently?

As an illustration, revenue has deteriorated at Beijing Leadman BiochemistryLtd over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Beijing Leadman BiochemistryLtd will help you shine a light on its historical performance.

How Is Beijing Leadman BiochemistryLtd's Revenue Growth Trending?

Beijing Leadman BiochemistryLtd'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.

Retrospectively, the last year delivered a frustrating 24% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 22% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 230% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's somewhat alarming that Beijing Leadman BiochemistryLtd's P/S sits in line with the majority of other companies. 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 Bottom Line On Beijing Leadman BiochemistryLtd's P/S

Its shares have lifted substantially and now Beijing Leadman BiochemistryLtd's P/S is back within range of the industry median. 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.

We find it unexpected that Beijing Leadman BiochemistryLtd trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Before you take the next step, you should know about the 1 warning sign for Beijing Leadman BiochemistryLtd that we have uncovered.

If you're unsure about the strength of Beijing Leadman BiochemistryLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.