3D Medicines Inc.'s (HKG:1244) Share Price Boosted 56% But Its Business Prospects Need A Lift Too

3D Medicines Inc. (HKG:1244) shares have continued their recent momentum with a 56% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 64%.

In spite of the firm bounce in price, 3D Medicines may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 3.1x, since almost half of all companies in the Biotechs industry in Hong Kong have P/S ratios greater than 16.3x and even P/S higher than 40x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for 3D Medicines

What Does 3D Medicines' P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at 3D Medicines over the last year, which is not ideal at all. 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 3D Medicines will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for 3D Medicines, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is 3D Medicines' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as 3D Medicines' is when the company's growth is on track to lag the industry decidedly.

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 30%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, despite the drawbacks experienced in the last 12 months. Therefore, it's fair to say the revenue growth recently has been superb for the company, but investors will want to ask why it is now in decline.

Comparing that to the industry, which is predicted to deliver 2,162% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we can see why 3D Medicines is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What Does 3D Medicines' P/S Mean For Investors?

3D Medicines' recent share price jump still sees fails to bring its P/S alongside the industry median. 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 3D Medicines confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for 3D Medicines with six simple checks on some of these key factors.

If these risks are making you reconsider your opinion on 3D Medicines, 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.