Baijin Life Science Holdings Limited (HKG:1466) Shares Slammed 28% But Getting In Cheap Might Be Difficult Regardless

Baijin Life Science Holdings Limited (HKG:1466) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. The recent drop has obliterated the annual return, with the share price now down 2.0% over that longer period.

Although its price has dipped substantially, given around half the companies in Hong Kong's Luxury industry have price-to-sales ratios (or "P/S") below 0.7x, you may still consider Baijin Life Science Holdings as a stock to avoid entirely with its 2.8x 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.

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See our latest analysis for Baijin Life Science Holdings

How Baijin Life Science Holdings Has Been Performing

Recent times have been quite advantageous for Baijin Life Science Holdings as its revenue has been rising very briskly. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

Although there are no analyst estimates available for Baijin Life Science Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Baijin Life Science Holdings would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 153% last year. The strong recent performance means it was also able to grow revenue by 116% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 17%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's understandable that Baijin Life Science Holdings' P/S sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What Does Baijin Life Science Holdings' P/S Mean For Investors?

Even after such a strong price drop, Baijin Life Science Holdings' P/S still exceeds the industry median significantly. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

It's no surprise that Baijin Life Science Holdings can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

It is also worth noting that we have found 1 warning sign for Baijin Life Science Holdings that you need to take into consideration.

If these risks are making you reconsider your opinion on Baijin Life Science Holdings, 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.