CStone Pharmaceuticals (HKG:2616) shares have continued their recent momentum with a 36% gain in the last month alone. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Even after such a large jump in price, CStone Pharmaceuticals' price-to-sales (or "P/S") ratio of 6.8x might still make it look like a buy right now compared to the Biotechs industry in Hong Kong, where around half of the companies have P/S ratios above 10.3x and even P/S above 46x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

How CStone Pharmaceuticals Has Been Performing

CStone Pharmaceuticals could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Is There Any Revenue Growth Forecasted For CStone Pharmaceuticals?

The only time you'd be truly comfortable seeing a P/S as low as CStone Pharmaceuticals' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 5.1% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 59% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 44% over the next year. With the industry predicted to deliver 148% growth, the company is positioned for a weaker revenue result.

In light of this, it's understandable that CStone Pharmaceuticals' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does CStone Pharmaceuticals' P/S Mean For Investors?

Despite CStone Pharmaceuticals' share price climbing recently, its P/S still lags most other companies. 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.

As expected, our analysis of CStone Pharmaceuticals' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with CStone Pharmaceuticals, and understanding should be part of your investment process.

If you're unsure about the strength of CStone Pharmaceuticals' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.