There's Reason For Concern Over Ascentage Pharma Group International's (HKG:6855) Price

Ascentage Pharma Group International's (HKG:6855) price-to-sales (or "P/S") ratio of 24.2x might make it look like a strong sell right now compared to the Biotechs industry in Hong Kong, where around half of the companies have P/S ratios below 15.3x and even P/S below 3x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Ascentage Pharma Group International

What Does Ascentage Pharma Group International's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Ascentage Pharma Group International has been relatively sluggish. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ascentage Pharma Group International.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Ascentage Pharma Group International's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 132% last year. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 64% per year as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 105% per annum, which is noticeably more attractive.

With this in consideration, we believe it doesn't make sense that Ascentage Pharma Group International's P/S is outpacing 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. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does Ascentage Pharma Group International's P/S Mean For Investors?

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 comes as a surprise to see Ascentage Pharma Group International trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Ascentage Pharma Group International that you need to be mindful 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.