What You Can Learn From Shenyang Xingqi Pharmaceutical Co.,Ltd.'s (SZSE:300573) P/S After Its 27% Share Price Crash

Shenyang Xingqi Pharmaceutical Co.,Ltd. (SZSE:300573) shareholders that were waiting for something to happen have been dealt a blow with a 27% share price drop in the last month. Looking at the bigger picture, even after this poor month the stock is up 41% in the last year.

Even after such a large drop in price, you could still be forgiven for thinking Shenyang Xingqi PharmaceuticalLtd is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 14.2x, considering almost half the companies in China's Pharmaceuticals industry have P/S ratios below 2.9x. 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 Shenyang Xingqi PharmaceuticalLtd

What Does Shenyang Xingqi PharmaceuticalLtd's Recent Performance Look Like?

Shenyang Xingqi PharmaceuticalLtd could be doing better as it's been growing revenue less than most other companies lately. 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shenyang Xingqi PharmaceuticalLtd.

Do Revenue Forecasts Match The High P/S Ratio?

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

Taking a look back first, we see that the company grew revenue by an impressive 24% last year. The latest three year period has also seen an excellent 88% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 47% as estimated by the only analyst watching the company. With the industry only predicted to deliver 17%, 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. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Shenyang Xingqi PharmaceuticalLtd's shares may have suffered, but its P/S remains high. 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.

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 the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

You always need to take note of risks, for example - Shenyang Xingqi PharmaceuticalLtd has 1 warning sign we think you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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