Improved Revenues Required Before Shanghai Henlius Biotech, Inc. (HKG:2696) Shares Find Their Feet

You may think that with a price-to-sales (or "P/S") ratio of 1.8x Shanghai Henlius Biotech, Inc. (HKG:2696) is definitely a stock worth checking out, seeing as almost half of all the Biotechs companies in Hong Kong have P/S ratios greater than 17.7x and even P/S above 41x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for Shanghai Henlius Biotech

What Does Shanghai Henlius Biotech's Recent Performance Look Like?

Shanghai Henlius Biotech could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shanghai Henlius Biotech.

Is There Any Revenue Growth Forecasted For Shanghai Henlius Biotech?

The only time you'd be truly comfortable seeing a P/S as depressed as Shanghai Henlius Biotech's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered an exceptional 91% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 23% per year over the next three years. With the industry predicted to deliver 104% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Shanghai Henlius Biotech's 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.

What Does Shanghai Henlius Biotech's P/S Mean For Investors?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Shanghai Henlius Biotech's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Shanghai Henlius Biotech that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.