What Ascentage Pharma Group International's (HKG:6855) P/S Is Not Telling You

You may think that with a price-to-sales (or "P/S") ratio of 13.8x Ascentage Pharma Group International (HKG:6855) is a stock to potentially avoid, seeing as almost half of all the Biotechs companies in Hong Kong have P/S ratios under 10.3x and even P/S lower than 2x aren't out of the ordinary. However, the P/S might be 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?

Ascentage Pharma Group International certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Ascentage Pharma Group International's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Ascentage Pharma Group International?

Ascentage Pharma Group International's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered an explosive gain to the company's top line. Spectacularly, three year revenue growth has also set the world alight, thanks to the last 12 months of incredible growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 37% per annum as estimated by the six analysts watching the company. With the industry predicted to deliver 56% growth per annum, the company is positioned for a weaker revenue result.

With this in consideration, we believe it doesn't make sense that Ascentage Pharma Group International's P/S is outpacing its industry peers. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. 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.

The Final Word

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've concluded that Ascentage Pharma Group International currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. 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. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You always need to take note of risks, for example - Ascentage Pharma Group International has 2 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on Ascentage Pharma Group International, 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.