Nanjing Vazyme Biotech Co.,Ltd (SHSE:688105) shareholders that were waiting for something to happen have been dealt a blow with a 27% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 61% loss during that time.

Following the heavy fall in price, Nanjing Vazyme BiotechLtd may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 4.4x, since almost half of all companies in the Biotechs industry in China have P/S ratios greater than 6.9x and even P/S higher than 12x 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.

Check out our latest analysis for Nanjing Vazyme BiotechLtd

What Does Nanjing Vazyme BiotechLtd's P/S Mean For Shareholders?

Nanjing Vazyme BiotechLtd 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. It seems that many are expecting the poor revenue performance to persist, which has repressed 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.

Is There Any Revenue Growth Forecasted For Nanjing Vazyme BiotechLtd?

In order to justify its P/S ratio, Nanjing Vazyme BiotechLtd would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 26%. Still, the latest three year period has seen an excellent 36% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to slump, contracting by 26% during the coming year according to the five analysts following the company. That's not great when the rest of the industry is expected to grow by 802%.

In light of this, it's understandable that Nanjing Vazyme BiotechLtd's P/S would sit below the majority of other companies. 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 Key Takeaway

Nanjing Vazyme BiotechLtd's recently weak share price has pulled its P/S back below other Biotechs companies. 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.

As we suspected, our examination of Nanjing Vazyme BiotechLtd's analyst forecasts revealed that its outlook for shrinking revenue 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.

Before you settle on your opinion, we've discovered 2 warning signs for Nanjing Vazyme BiotechLtd (1 can't be ignored!) that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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