Shenzhen Neptunus Bioengineering Co., Ltd.'s (SZSE:000078) price-to-sales (or "P/S") ratio of 0.2x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Healthcare industry in China have P/S ratios greater than 1.8x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
SZSE:000078 Price to Sales Ratio vs Industry May 1st 2024
How Has Shenzhen Neptunus Bioengineering Performed Recently?
For instance, Shenzhen Neptunus Bioengineering's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. If you 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.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shenzhen Neptunus Bioengineering's earnings, revenue and cash flow.
Do Revenue Forecasts Match The Low P/S Ratio?
In order to justify its P/S ratio, Shenzhen Neptunus Bioengineering would need to produce sluggish growth that's trailing the industry.
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 10%. The last three years don't look nice either as the company has shrunk revenue by 18% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
In contrast to the company, the rest of the industry is expected to grow by 17% over the next year, which really puts the company's recent medium-term revenue decline into perspective.
With this in mind, we understand why Shenzhen Neptunus Bioengineering's P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.
The Final Word
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.
It's no surprise that Shenzhen Neptunus Bioengineering maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.
You always need to take note of risks, for example - Shenzhen Neptunus Bioengineering has 2 warning signs we think you should be aware of.
If you're unsure about the strength of Shenzhen Neptunus Bioengineering'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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