Some Xinjiang Tianshan Animal Husbandry Bio-engineering Co., Ltd. (SZSE:300313) Shareholders Look For Exit As Shares Take 26% Pounding

Xinjiang Tianshan Animal Husbandry Bio-engineering Co., Ltd. (SZSE:300313) shares have had a horrible month, losing 26% after a relatively good period beforehand. Still, a bad month hasn't completely ruined the past year with the stock gaining 28%, which is great even in a bull market.

In spite of the heavy fall in price, when almost half of the companies in China's Biotechs industry have price-to-sales ratios (or "P/S") below 6.4x, you may still consider Xinjiang Tianshan Animal Husbandry Bio-engineering as a stock not worth researching with its 14.8x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Xinjiang Tianshan Animal Husbandry Bio-engineering

How Has Xinjiang Tianshan Animal Husbandry Bio-engineering Performed Recently?

Recent times have been quite advantageous for Xinjiang Tianshan Animal Husbandry Bio-engineering as its revenue has been rising very briskly. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 Xinjiang Tianshan Animal Husbandry Bio-engineering's earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Xinjiang Tianshan Animal Husbandry Bio-engineering would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 52% last year. Still, revenue has fallen 2.2% in total from three years ago, which is quite disappointing. 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 255% shows it's an unpleasant look.

In light of this, it's alarming that Xinjiang Tianshan Animal Husbandry Bio-engineering's P/S sits above 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 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.

What We Can Learn From Xinjiang Tianshan Animal Husbandry Bio-engineering's P/S?

Even after such a strong price drop, Xinjiang Tianshan Animal Husbandry Bio-engineering's P/S still exceeds the industry median significantly. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Xinjiang Tianshan Animal Husbandry Bio-engineering currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. 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. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Plus, you should also learn about this 1 warning sign we've spotted with Xinjiang Tianshan Animal Husbandry Bio-engineering.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com