There's Reason For Concern Over Tianjin TEDA Biomedical Engineering Company Limited's (HKG:8189) Massive 38% Price Jump

The Tianjin TEDA Biomedical Engineering Company Limited (HKG:8189) share price has done very well over the last month, posting an excellent gain of 38%. The last 30 days bring the annual gain to a very sharp 43%.

Although its price has surged higher, it's still not a stretch to say that Tianjin TEDA Biomedical Engineering's price-to-sales (or "P/S") ratio of 0.4x right now seems quite "middle-of-the-road" compared to the Chemicals industry in Hong Kong, seeing as it matches the P/S ratio of the wider industry. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Tianjin TEDA Biomedical Engineering

What Does Tianjin TEDA Biomedical Engineering's P/S Mean For Shareholders?

For example, consider that Tianjin TEDA Biomedical Engineering's financial performance has been poor lately as its revenue has been in decline. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

In order to justify its P/S ratio, Tianjin TEDA Biomedical Engineering 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 1.4%. Regardless, revenue has managed to lift by a handy 7.8% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 33% shows it's noticeably less attractive.

In light of this, it's curious that Tianjin TEDA Biomedical Engineering's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Final Word

Tianjin TEDA Biomedical Engineering appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of Tianjin TEDA Biomedical Engineering revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

You should always think about risks. Case in point, we've spotted 2 warning signs for Tianjin TEDA Biomedical Engineering you should be aware of, and 1 of them shouldn't be ignored.

If you're unsure about the strength of Tianjin TEDA Biomedical Engineering's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.