Unfortunately for some shareholders, the Ningxia Zhongke Biotechnology Co., Ltd (SHSE:600165) share price has dived 27% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 65% loss during that time.

Although its price has dipped substantially, you could still be forgiven for thinking Ningxia Zhongke Biotechnology is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3.1x, considering almost half the companies in China's Chemicals industry have P/S ratios below 2x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

How Has Ningxia Zhongke Biotechnology Performed Recently?

For instance, Ningxia Zhongke Biotechnology's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

Is There Enough Revenue Growth Forecasted For Ningxia Zhongke Biotechnology?

In order to justify its P/S ratio, Ningxia Zhongke Biotechnology would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a frustrating 48% decrease to the company's top line. Even so, admirably revenue has lifted 115% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 23%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's understandable that Ningxia Zhongke Biotechnology's P/S sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What Does Ningxia Zhongke Biotechnology's P/S Mean For Investors?

There's still some elevation in Ningxia Zhongke Biotechnology's P/S, even if the same can't be said for its share price recently. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Ningxia Zhongke Biotechnology maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Ningxia Zhongke Biotechnology that you should be aware of.

If these risks are making you reconsider your opinion on Ningxia Zhongke Biotechnology, 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.

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