CANbridge Pharmaceuticals Inc. (HKG:1228) shareholders have had their patience rewarded with a 40% share price jump in the last month. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 69% share price drop in the last twelve months.

Although its price has surged higher, CANbridge Pharmaceuticals may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.6x, since almost half of all companies in the Biotechs industry in Hong Kong have P/S ratios greater than 11.4x and even P/S higher than 55x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

What Does CANbridge Pharmaceuticals' P/S Mean For Shareholders?

Recent times haven't been great for CANbridge Pharmaceuticals as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Do Revenue Forecasts Match The Low P/S Ratio?

CANbridge Pharmaceuticals' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 20%. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 34% as estimated by the only analyst watching the company. That's shaping up to be materially lower than the 87% growth forecast for the broader industry.

With this information, we can see why CANbridge Pharmaceuticals is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

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

Even after such a strong price move, CANbridge Pharmaceuticals' P/S still trails the rest of the industry. 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.

As expected, our analysis of CANbridge 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.

You need to take note of risks, for example - CANbridge Pharmaceuticals has 5 warning signs (and 3 which are potentially serious) we think you should know about.

If you're unsure about the strength of CANbridge 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.