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

With a price-to-sales (or "P/S") ratio of 26.7x Ascentage Pharma Group International (HKG:6855) may be sending very bearish signals at the moment, given that almost half of all the Biotechs companies in Hong Kong have P/S ratios under 12.4x and even P/S lower than 2x are not unusual. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Ascentage Pharma Group International

How Has Ascentage Pharma Group International Performed Recently?

Recent times haven't been great for Ascentage Pharma Group International as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

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

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

In order to justify its P/S ratio, Ascentage Pharma Group International would need to produce outstanding growth that's well in excess of the industry.

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.

Looking ahead now, revenue is anticipated to climb by 55% per year during the coming three years according to the five analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 68% per year, 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. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Final Word

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.

Having said that, be aware Ascentage Pharma Group International is showing 2 warning signs in our investment analysis, you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.