Investors Don't See Light At End Of LakeShore Biopharma Co., Ltd's (NASDAQ:LSB) Tunnel And Push Stock Down 66%

LakeShore Biopharma Co., Ltd (NASDAQ:LSB) shares have had a horrible month, losing 66% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 52% loss during that time.

Following the heavy fall in price, LakeShore Biopharma's price-to-sales (or "P/S") ratio of 0.6x might make it look like a strong buy right now compared to the wider Biotechs industry in the United States, where around half of the companies have P/S ratios above 12x and even P/S above 72x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for LakeShore Biopharma

How LakeShore Biopharma Has Been Performing

LakeShore Biopharma hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on LakeShore Biopharma will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For LakeShore Biopharma?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like LakeShore Biopharma's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 17%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 123% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Turning to the outlook, the next year should generate growth of 38% as estimated by the one analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 108%, which is noticeably more attractive.

With this information, we can see why LakeShore Biopharma is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From LakeShore Biopharma's P/S?

LakeShore Biopharma's P/S looks about as weak as its stock price lately. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of LakeShore Biopharma's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 5 warning signs with LakeShore Biopharma (at least 4 which don't sit too well with us), and understanding them should be part of your investment process.

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

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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.