The Market Doesn't Like What It Sees From Shandong Boan Biotechnology Co., Ltd.'s (HKG:6955) Revenues Yet As Shares Tumble 27%

Shandong Boan Biotechnology Co., Ltd. (HKG:6955) shares have had a horrible month, losing 27% after a relatively good period beforehand. Looking at the bigger picture, even after this poor month the stock is up 47% in the last year.

Although its price has dipped substantially, Shandong Boan Biotechnology's price-to-sales (or "P/S") ratio of 10.1x might still make it look like a buy right now compared to the Biotechs industry in Hong Kong, where around half of the companies have P/S ratios above 18.1x and even P/S above 70x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Check out our latest analysis for Shandong Boan Biotechnology

How Shandong Boan Biotechnology Has Been Performing

Recent times haven't been great for Shandong Boan Biotechnology as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. 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 Shandong Boan Biotechnology.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Shandong Boan Biotechnology would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 5.1% last year. Pleasingly, revenue has also lifted 106% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 44% during the coming year according to the only analyst following the company. That's shaping up to be materially lower than the 578% growth forecast for the broader industry.

In light of this, it's understandable that Shandong Boan Biotechnology's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Shandong Boan Biotechnology's recently weak share price has pulled its P/S back below other Biotechs companies. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Shandong Boan Biotechnology maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - Shandong Boan Biotechnology has 3 warning signs we think you should be aware of.

If you're unsure about the strength of Shandong Boan Biotechnology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.