YiChang HEC ChangJiang Pharmaceutical Co., Ltd.'s (HKG:1558) Popularity With Investors Under Threat As Stock Sinks 26%

YiChang HEC ChangJiang Pharmaceutical Co., Ltd. (HKG:1558) shares have had a horrible month, losing 26% after a relatively good period beforehand. Still, a bad month hasn't completely ruined the past year with the stock gaining 48%, which is great even in a bull market.

Although its price has dipped substantially, there still wouldn't be many who think YiChang HEC ChangJiang Pharmaceutical's price-to-sales (or "P/S") ratio of 1.3x is worth a mention when the median P/S in Hong Kong's Pharmaceuticals industry is similar at about 1.4x. 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.

Check out our latest analysis for YiChang HEC ChangJiang Pharmaceutical

What Does YiChang HEC ChangJiang Pharmaceutical's P/S Mean For Shareholders?

Recent times have been advantageous for YiChang HEC ChangJiang Pharmaceutical as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on YiChang HEC ChangJiang Pharmaceutical.

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

The only time you'd be comfortable seeing a P/S like YiChang HEC ChangJiang Pharmaceutical's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 68%. The strong recent performance means it was also able to grow revenue by 168% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 3.5% per annum during the coming three years according to the only analyst following the company. With the industry predicted to deliver 13% growth each year, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that YiChang HEC ChangJiang Pharmaceutical's P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From YiChang HEC ChangJiang Pharmaceutical's P/S?

YiChang HEC ChangJiang Pharmaceutical's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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 the analysts forecasts of YiChang HEC ChangJiang Pharmaceutical's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

You should always think about risks. Case in point, we've spotted 1 warning sign for YiChang HEC ChangJiang Pharmaceutical you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.