Austar Lifesciences Limited (HKG:6118) shares have had a horrible month, losing 27% after a relatively good period beforehand.    Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 28% share price drop.  

Even after such a large drop in price, Austar Lifesciences may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.3x, considering almost half of all companies in the Life Sciences industry in Hong Kong have P/S ratios greater than 4x and even P/S higher than 7x 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.  

SEHK:6118 Price to Sales Ratio vs Industry March 11th 2024

What Does Austar Lifesciences' Recent Performance Look Like?

For example, consider that Austar Lifesciences' financial performance has been poor lately as its revenue has been in decline.   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 Austar Lifesciences will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.    

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Austar Lifesciences will help you shine a light on its historical performance.  

Is There Any Revenue Growth Forecasted For Austar Lifesciences?  

The only time you'd be truly comfortable seeing a P/S as depressed as Austar Lifesciences' is when the company's growth is on track to lag the industry decidedly.  

Retrospectively, the last year delivered a frustrating 7.7% decrease to the company's top line.   Even so, admirably revenue has lifted 92% in aggregate from three years ago, notwithstanding the last 12 months.  Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.  

This is in contrast to the rest of the industry, which is expected to grow by 22% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Austar Lifesciences' P/S sits below the majority of other companies.  Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.  

The Key Takeaway

Austar Lifesciences' P/S looks about as weak as its stock price lately.      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.

Our examination of Austar Lifesciences revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations.  When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio.  It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.    

Before you take the next step, you should know about the 4 warning signs for Austar Lifesciences that we have uncovered.  

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.