Shenzhen Bioeasy Biotechnology Co., Ltd. (SZSE:300942) shareholders would be excited to see that the share price has had a great month, posting a 46% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 23% over that time.

Following the firm bounce in price, Shenzhen Bioeasy Biotechnology may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 15.2x, since almost half of all companies in the Medical Equipment industry in China have P/S ratios under 6.2x and even P/S lower than 3x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

What Does Shenzhen Bioeasy Biotechnology's Recent Performance Look Like?

For instance, Shenzhen Bioeasy 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

The only time you'd be truly comfortable seeing a P/S as steep as Shenzhen Bioeasy Biotechnology's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a frustrating 24% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 46% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 27% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we find it worrying that Shenzhen Bioeasy Biotechnology's P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does Shenzhen Bioeasy Biotechnology's P/S Mean For Investors?

The strong share price surge has lead to Shenzhen Bioeasy Biotechnology's P/S soaring as well. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Shenzhen Bioeasy Biotechnology revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

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

If these risks are making you reconsider your opinion on Shenzhen Bioeasy Biotechnology, explore our interactive list of high quality stocks to get an idea of what else is out there.

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