Stock Analysis

Global Bio-chem Technology Group Company Limited's (HKG:809) 40% Price Boost Is Out Of Tune With Revenues

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Those holding Global Bio-chem Technology Group Company Limited (HKG:809) shares would be relieved that the share price has rebounded 40% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 62% share price decline over the last year.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Global Bio-chem Technology Group's P/S ratio of 0.8x, since the median price-to-sales (or "P/S") ratio for the Food industry in Hong Kong is also close to 0.6x. 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.

Check out our latest analysis for Global Bio-chem Technology Group

SEHK:809 Price to Sales Ratio vs Industry September 17th 2023

How Has Global Bio-chem Technology Group Performed Recently?

Recent times have been quite advantageous for Global Bio-chem Technology Group as its revenue has been rising very briskly. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Global Bio-chem Technology Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Global Bio-chem Technology Group's earnings, revenue and cash flow.

How Is Global Bio-chem Technology Group's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Global Bio-chem Technology Group's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 62%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 61% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Comparing that to the industry, which is predicted to deliver 7.7% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's somewhat alarming that Global Bio-chem Technology Group's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does Global Bio-chem Technology Group's P/S Mean For Investors?

Its shares have lifted substantially and now Global Bio-chem Technology Group'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.

Our look at Global Bio-chem Technology Group revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Global Bio-chem Technology Group (of which 2 don't sit too well with us!) you should know about.

If you're unsure about the strength of Global Bio-chem Technology Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Valuation is complex, but we're helping make it simple.

Find out whether Global Bio-chem Technology Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.