After Leaping 31% Shenyang Xingqi Pharmaceutical Co.,Ltd. (SZSE:300573) Shares Are Not Flying Under The Radar

Despite an already strong run, Shenyang Xingqi Pharmaceutical Co.,Ltd. (SZSE:300573) shares have been powering on, with a gain of 31% in the last thirty days. The last month tops off a massive increase of 144% in the last year.

After such a large jump in price, given around half the companies in China's Pharmaceuticals industry have price-to-sales ratios (or "P/S") below 3.7x, you may consider Shenyang Xingqi PharmaceuticalLtd as a stock to avoid entirely with its 23.6x P/S ratio. 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 Shenyang Xingqi PharmaceuticalLtd

How Has Shenyang Xingqi PharmaceuticalLtd Performed Recently?

With revenue growth that's inferior to most other companies of late, Shenyang Xingqi PharmaceuticalLtd has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Shenyang Xingqi PharmaceuticalLtd will help you uncover what's on the horizon.

How Is Shenyang Xingqi PharmaceuticalLtd's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Shenyang Xingqi PharmaceuticalLtd's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 24%. The strong recent performance means it was also able to grow revenue by 88% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 47% over the next year. With the industry only predicted to deliver 18%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Shenyang Xingqi PharmaceuticalLtd's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Shenyang Xingqi PharmaceuticalLtd's P/S?

The strong share price surge has lead to Shenyang Xingqi PharmaceuticalLtd's P/S soaring as well. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Shenyang Xingqi PharmaceuticalLtd maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Pharmaceuticals industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 1 warning sign for Shenyang Xingqi PharmaceuticalLtd that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.