You may think that with a price-to-sales (or "P/S") ratio of 0.9x Zhejiang Hisun Pharmaceutical Co., Ltd. (SHSE:600267) is definitely a stock worth checking out, seeing as almost half of all the Pharmaceuticals companies in China have P/S ratios greater than 3.4x and even P/S above 7x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

How Zhejiang Hisun Pharmaceutical Has Been Performing

While the industry has experienced revenue growth lately, Zhejiang Hisun Pharmaceutical's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still 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.

How Is Zhejiang Hisun Pharmaceutical's Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Zhejiang Hisun Pharmaceutical's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 17%. This means it has also seen a slide in revenue over the longer-term as revenue is down 16% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 7.9% during the coming year according to the two analysts following the company. With the industry predicted to deliver 19% growth, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Zhejiang Hisun Pharmaceutical's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Zhejiang Hisun Pharmaceutical's P/S

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.

As we suspected, our examination of Zhejiang Hisun Pharmaceutical's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you take the next step, you should know about the 1 warning sign for Zhejiang Hisun Pharmaceutical 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.