Viva Biotech Holdings' (HKG:1873) Shares Bounce 29% But Its Business Still Trails The Industry

Despite an already strong run, Viva Biotech Holdings (HKG:1873) shares have been powering on, with a gain of 29% in the last thirty days. The last month tops off a massive increase of 231% in 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 5.5x, you may still consider Viva Biotech Holdings as an great investment opportunity with its 1.8x 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.

Check out our latest analysis for Viva Biotech Holdings

How Has Viva Biotech Holdings Performed Recently?

As an illustration, revenue has deteriorated at Viva Biotech Holdings 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 Viva Biotech Holdings 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 Viva Biotech Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

Viva Biotech Holdings' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than 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 7.8%. The last three years don't look nice either as the company has shrunk revenue by 5.6% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 31% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we understand why Viva Biotech Holdings' P/S is lower than most of its industry peers. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

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.

It's no surprise that Viva Biotech Holdings maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Before you take the next step, you should know about the 2 warning signs for Viva Biotech Holdings (1 is a bit unpleasant!) that we have uncovered.

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.