Biosino Bio-Technology and Science Incorporation (HKG:8247) shareholders would be excited to see that the share price has had a great month, posting a 68% 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 17% over that time.

Although its price has surged higher, Biosino Bio-Technology and Science Incorporation may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.4x, considering almost half of all companies in the Biotechs industry in Hong Kong have P/S ratios greater than 11.8x and even P/S higher than 26x 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 limited.

What Does Biosino Bio-Technology and Science Incorporation's Recent Performance Look Like?

For instance, Biosino Bio-Technology and Science Incorporation's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Biosino Bio-Technology and Science Incorporation will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

How Is Biosino Bio-Technology and Science Incorporation's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Biosino Bio-Technology and Science Incorporation's is when the company's growth is on track to lag the industry decidedly.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 23%. This means it has also seen a slide in revenue over the longer-term as revenue is down 11% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 41% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's understandable that Biosino Bio-Technology and Science Incorporation's P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Final Word

Even after such a strong price move, Biosino Bio-Technology and Science Incorporation's P/S still trails the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Biosino Bio-Technology and Science Incorporation confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Before you take the next step, you should know about the 2 warning signs for Biosino Bio-Technology and Science Incorporation (1 can't be ignored!) that we have uncovered.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.