Unfortunately for some shareholders, the Jiangsu Gdk Biological Technology Co., Ltd (SHSE:688670) share price has dived 27% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 46% in that time.

Although its price has dipped substantially, you could still be forgiven for thinking Jiangsu Gdk Biological Technology is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 10.3x, considering almost half the companies in China's Biotechs industry have P/S ratios below 6.8x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

How Jiangsu Gdk Biological Technology Has Been Performing

As an illustration, revenue has deteriorated at Jiangsu Gdk Biological Technology over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

How Is Jiangsu Gdk Biological Technology's Revenue Growth Trending?

Jiangsu Gdk Biological Technology's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 17%. The last three years don't look nice either as the company has shrunk revenue by 63% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 787% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Jiangsu Gdk Biological Technology is trading at a P/S higher than the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Jiangsu Gdk Biological Technology's P/S

Even after such a strong price drop, Jiangsu Gdk Biological Technology's P/S still exceeds the industry median significantly. 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.

Our examination of Jiangsu Gdk Biological Technology revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Having said that, be aware Jiangsu Gdk Biological Technology is showing 2 warning signs in our investment analysis, you should know about.

If you're unsure about the strength of Jiangsu Gdk Biological Technology's 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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