Benign Growth For RemeGen Co., Ltd. (HKG:9995) Underpins Stock's 41% Plummet

RemeGen Co., Ltd. (HKG:9995) shareholders that were waiting for something to happen have been dealt a blow with a 41% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 65% share price decline.

After such a large drop in price, RemeGen may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 6.2x, since almost half of all companies in the Biotechs industry in Hong Kong have P/S ratios greater than 10.1x and even P/S higher than 23x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for RemeGen

What Does RemeGen's Recent Performance Look Like?

RemeGen 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.

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

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

The only time you'd be truly comfortable seeing a P/S as low as RemeGen's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 58% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 43% per annum over the next three years. That's shaping up to be materially lower than the 52% each year growth forecast for the broader industry.

With this information, we can see why RemeGen is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does RemeGen's P/S Mean For Investors?

RemeGen's P/S has taken a dip along with its share price. 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.

As we suspected, our examination of RemeGen's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

And what about other risks? Every company has them, and we've spotted 3 warning signs for RemeGen (of which 1 can't be ignored!) you should know about.

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.

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