Even With A 25% Surge, Cautious Investors Are Not Rewarding Viva Biotech Holdings' (HKG:1873) Performance Completely

Viva Biotech Holdings (HKG:1873) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. But the last month did very little to improve the 60% share price decline over the last year.

In spite of the firm bounce in price, considering about half the companies operating in Hong Kong's Life Sciences industry have price-to-sales ratios (or "P/S") above 3.3x, you may still consider Viva Biotech Holdings as an great investment opportunity with its 0.6x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for Viva Biotech Holdings

How Has Viva Biotech Holdings Performed Recently?

For example, consider that Viva Biotech Holdings' financial performance has been poor lately as its revenue has been in decline. 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 Viva Biotech Holdings will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

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

Is There Any Revenue Growth Forecasted For Viva Biotech Holdings?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Viva Biotech Holdings' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 9.4% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 209% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 22% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's peculiar that Viva Biotech Holdings' P/S sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What Does Viva Biotech Holdings' P/S Mean For Investors?

Shares in Viva Biotech Holdings have risen appreciably however, its P/S is still subdued. 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 examination of Viva Biotech Holdings revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Viva Biotech Holdings (1 shouldn't be ignored!) that you need to be mindful of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.