Chengdu Olymvax Biopharmaceuticals Inc. (SHSE:688319) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. But the last month did very little to improve the 51% share price decline over the last year.

Since its price has surged higher, given close to half the companies operating in China's Biotechs industry have price-to-sales ratios (or "P/S") below 6.4x, you may consider Chengdu Olymvax Biopharmaceuticals as a stock to potentially avoid with its 8.3x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

What Does Chengdu Olymvax Biopharmaceuticals' P/S Mean For Shareholders?

Chengdu Olymvax Biopharmaceuticals 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. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Is There Enough Revenue Growth Forecasted For Chengdu Olymvax Biopharmaceuticals?

The only time you'd be truly comfortable seeing a P/S as high as Chengdu Olymvax Biopharmaceuticals' is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered a frustrating 11% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 53% in total over the last three years. 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.

Turning to the outlook, the next year should generate growth of 40% as estimated by the sole analyst watching the company. With the industry predicted to deliver 255% growth, the company is positioned for a weaker revenue result.

In light of this, it's alarming that Chengdu Olymvax Biopharmaceuticals' P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

The large bounce in Chengdu Olymvax Biopharmaceuticals' shares has lifted the company's P/S handsomely. 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.

It comes as a surprise to see Chengdu Olymvax Biopharmaceuticals trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Chengdu Olymvax Biopharmaceuticals you should know about.

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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