The Hunan Jingfeng Pharmaceutical Co.,Ltd. (SZSE:000908) share price has fared very poorly over the last month, falling by a substantial 38%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 41% share price drop.

Since its price has dipped substantially, Hunan Jingfeng PharmaceuticalLtd may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.8x, since almost half of all companies in the Pharmaceuticals industry in China have P/S ratios greater than 3.2x and even P/S higher than 6x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

What Does Hunan Jingfeng PharmaceuticalLtd's P/S Mean For Shareholders?

For example, consider that Hunan Jingfeng PharmaceuticalLtd's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. If you 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 Hunan Jingfeng PharmaceuticalLtd's Revenue Growth Trending?

Hunan Jingfeng PharmaceuticalLtd's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 9.3%. This means it has also seen a slide in revenue over the longer-term as revenue is down 37% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 41% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we understand why Hunan Jingfeng PharmaceuticalLtd's P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does Hunan Jingfeng PharmaceuticalLtd's P/S Mean For Investors?

The southerly movements of Hunan Jingfeng PharmaceuticalLtd's shares means its P/S is now sitting at a pretty low level. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Hunan Jingfeng PharmaceuticalLtd confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Hunan Jingfeng PharmaceuticalLtd you should be aware of.

If these risks are making you reconsider your opinion on Hunan Jingfeng PharmaceuticalLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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