The Lifecome Biochemistry Co.,Ltd. (SZSE:002868) share price has fared very poorly over the last month, falling by a substantial 28%. For any long-term shareholders, the last month ends a year to forget by locking in a 58% share price decline.

Following the heavy fall in price, Lifecome BiochemistryLtd's price-to-sales (or "P/S") ratio of 4.6x might make it look like a buy right now compared to the Biotechs industry in China, where around half of the companies have P/S ratios above 6.7x and even P/S above 13x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

What Does Lifecome BiochemistryLtd's Recent Performance Look Like?

Recent times have been quite advantageous for Lifecome BiochemistryLtd as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. 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.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 43% gain to the company's top line. Pleasingly, revenue has also lifted 52% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 198% shows it's noticeably less attractive.

With this in consideration, it's easy to understand why Lifecome BiochemistryLtd's P/S falls short of the mark set by its industry peers. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

Lifecome BiochemistryLtd's P/S has taken a dip along with its share price. 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.

Our examination of Lifecome BiochemistryLtd confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 3 warning signs for Lifecome BiochemistryLtd (2 are a bit unpleasant!) that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.