Further Upside For Zhejiang Tianyu Pharmaceutical Co., Ltd. (SZSE:300702) Shares Could Introduce Price Risks After 27% Bounce

The Zhejiang Tianyu Pharmaceutical Co., Ltd. (SZSE:300702) share price has done very well over the last month, posting an excellent gain of 27%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 20% in the last twelve months.

Even after such a large jump in price, there still wouldn't be many who think Zhejiang Tianyu Pharmaceutical's price-to-sales (or "P/S") ratio of 2.9x is worth a mention when the median P/S in China's Pharmaceuticals industry is similar at about 3.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Zhejiang Tianyu Pharmaceutical

How Has Zhejiang Tianyu Pharmaceutical Performed Recently?

While the industry has experienced revenue growth lately, Zhejiang Tianyu Pharmaceutical's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Zhejiang Tianyu Pharmaceutical will help you uncover what's on the horizon.

How Is Zhejiang Tianyu Pharmaceutical's Revenue Growth Trending?

In order to justify its P/S ratio, Zhejiang Tianyu Pharmaceutical would need to produce growth that's similar to the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 9.4%. As a result, revenue from three years ago have also fallen 12% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 24% as estimated by the three analysts watching the company. With the industry only predicted to deliver 19%, the company is positioned for a stronger revenue result.

In light of this, it's curious that Zhejiang Tianyu Pharmaceutical's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

Its shares have lifted substantially and now Zhejiang Tianyu Pharmaceutical's P/S is back within range of the industry median. 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.

We've established that Zhejiang Tianyu Pharmaceutical currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Zhejiang Tianyu Pharmaceutical with six simple checks.

If these risks are making you reconsider your opinion on Zhejiang Tianyu 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.