Viva Biotech Holdings (HKG:1873) Surges 30% Yet Its Low P/S Is No Reason For Excitement

The Viva Biotech Holdings (HKG:1873) share price has done very well over the last month, posting an excellent gain of 30%. The last month tops off a massive increase of 123% in the last year.

Even after such a large jump in price, given close to half the companies in Hong Kong's Life Sciences industry have price-to-sales ratios (or "P/S") above 4.8x, you may still consider Viva Biotech Holdings as a highly attractive investment with its 1.7x 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.

Our free stock report includes 2 warning signs investors should be aware of before investing in Viva Biotech Holdings. Read for free now.

View our latest analysis for Viva Biotech Holdings

What Does Viva Biotech Holdings' Recent Performance Look Like?

Viva Biotech Holdings could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Viva Biotech Holdings will help you uncover what's on the horizon.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Viva Biotech Holdings would need to produce anemic growth that's substantially trailing 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%. This means it has also seen a slide in revenue over the longer-term as revenue is down 5.6% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 15% per year over the next three years. With the industry predicted to deliver 25% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Viva Biotech Holdings' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Even after such a strong price move, Viva Biotech Holdings' P/S still trails the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Viva Biotech Holdings' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you settle on your opinion, we've discovered 2 warning signs for Viva Biotech Holdings (1 shouldn't be ignored!) that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.