The Suzhou Zelgen Biopharmaceuticals Co.,Ltd. (SHSE:688266) share price has fared very poorly over the last month, falling by a substantial 29%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 33% in that time.

Even after such a large drop in price, Suzhou Zelgen BiopharmaceuticalsLtd may still be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 23.8x, when you consider almost half of the companies in the Biotechs industry in China have P/S ratios under 6.2x and even P/S lower than 3x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

What Does Suzhou Zelgen BiopharmaceuticalsLtd's Recent Performance Look Like?

Suzhou Zelgen BiopharmaceuticalsLtd certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

Is There Enough Revenue Growth Forecasted For Suzhou Zelgen BiopharmaceuticalsLtd?

In order to justify its P/S ratio, Suzhou Zelgen BiopharmaceuticalsLtd would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 33% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 121% as estimated by the three analysts watching the company. With the industry predicted to deliver 814% growth, the company is positioned for a weaker revenue result.

With this information, we find it concerning that Suzhou Zelgen BiopharmaceuticalsLtd is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What Does Suzhou Zelgen BiopharmaceuticalsLtd's P/S Mean For Investors?

Suzhou Zelgen BiopharmaceuticalsLtd's shares may have suffered, but its P/S remains high. 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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Suzhou Zelgen BiopharmaceuticalsLtd, this doesn't appear to be impacting the P/S in the slightest. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It is also worth noting that we have found 2 warning signs for Suzhou Zelgen BiopharmaceuticalsLtd that you need to take into consideration.

If these risks are making you reconsider your opinion on Suzhou Zelgen BiopharmaceuticalsLtd, 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.