Lepu Biopharma Co., Ltd. (HKG:2157) May Have Run Too Fast Too Soon With Recent 29% Price Plummet

The Lepu Biopharma Co., Ltd. (HKG:2157) share price has softened a substantial 29% over the previous 30 days, handing back much of the gains the stock has made lately. The good news is that in the last year, the stock has shone bright like a diamond, gaining 140%.

Even after such a large drop in price, there still wouldn't be many who think Lepu Biopharma's price-to-sales (or "P/S") ratio of 17.1x is worth a mention when the median P/S in Hong Kong's Biotechs industry is similar at about 18x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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How Lepu Biopharma Has Been Performing

Lepu Biopharma certainly has been doing a good job lately as it's been growing revenue more 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.

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Is There Some Revenue Growth Forecasted For Lepu Biopharma?

In order to justify its P/S ratio, Lepu Biopharma would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 242% last year. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 26% as estimated by the lone analyst watching the company. That's not great when the rest of the industry is expected to grow by 535%.

With this in consideration, we think it doesn't make sense that Lepu Biopharma's P/S is closely matching its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

What Does Lepu Biopharma's P/S Mean For Investors?

Following Lepu Biopharma's share price tumble, its P/S is just clinging on to the industry median P/S. 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.

It appears that Lepu Biopharma currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

Before you settle on your opinion, we've discovered 3 warning signs for Lepu Biopharma (1 is significant!) that you should be aware of.

If these risks are making you reconsider your opinion on Lepu Biopharma, 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.