Some Fujian Cosunter Pharmaceutical Co., Ltd. (SZSE:300436) Shareholders Look For Exit As Shares Take 28% Pounding

To the annoyance of some shareholders, Fujian Cosunter Pharmaceutical Co., Ltd. (SZSE:300436) shares are down a considerable 28% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 54% share price decline.

Although its price has dipped substantially, given around half the companies in China's Pharmaceuticals industry have price-to-sales ratios (or "P/S") below 3.3x, you may still consider Fujian Cosunter Pharmaceutical as a stock to avoid entirely with its 6.4x 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.

See our latest analysis for Fujian Cosunter Pharmaceutical

What Does Fujian Cosunter Pharmaceutical's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Fujian Cosunter Pharmaceutical over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

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 Fujian Cosunter Pharmaceutical's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Fujian Cosunter Pharmaceutical?

The only time you'd be truly comfortable seeing a P/S as steep as Fujian Cosunter Pharmaceutical's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a frustrating 7.3% decrease to the company's top line. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 42% shows it's noticeably less attractive.

In light of this, it's alarming that Fujian Cosunter Pharmaceutical's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Key Takeaway

Fujian Cosunter Pharmaceutical's shares may have suffered, but its P/S remains high. 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 Fujian Cosunter Pharmaceutical revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

Plus, you should also learn about this 1 warning sign we've spotted with Fujian Cosunter Pharmaceutical.

If these risks are making you reconsider your opinion on Fujian Cosunter Pharmaceutical, 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.