Guangdong Hybribio Biotech Co.,Ltd.'s (SZSE:300639) Share Price Boosted 45% But Its Business Prospects Need A Lift Too

Despite an already strong run, Guangdong Hybribio Biotech Co.,Ltd. (SZSE:300639) shares have been powering on, with a gain of 45% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 20% over that time.

Although its price has surged higher, Guangdong Hybribio BiotechLtd may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 5.4x, considering almost half of all companies in the Biotechs industry in China have P/S ratios greater than 7x and even P/S higher than 13x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Guangdong Hybribio BiotechLtd

How Guangdong Hybribio BiotechLtd Has Been Performing

For instance, Guangdong Hybribio BiotechLtd's receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on Guangdong Hybribio BiotechLtd will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

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

How Is Guangdong Hybribio BiotechLtd's Revenue Growth Trending?

In order to justify its P/S ratio, Guangdong Hybribio BiotechLtd would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 73% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 58% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 230% shows it's an unpleasant look.

In light of this, it's understandable that Guangdong Hybribio BiotechLtd's P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What We Can Learn From Guangdong Hybribio BiotechLtd's P/S?

Despite Guangdong Hybribio BiotechLtd's share price climbing recently, its P/S still lags most other companies. 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.

Our examination of Guangdong Hybribio BiotechLtd confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Guangdong Hybribio BiotechLtd you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.