HARBIN GLORIA PHARMACEUTICALS Co., LTD (SZSE:002437) shareholders have had their patience rewarded with a 30% share price jump in the last month. Notwithstanding the latest gain, the annual share price return of 8.9% isn't as impressive.

Even after such a large jump in price, HARBIN GLORIA PHARMACEUTICALS may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 2.4x, considering almost half of all companies in the Pharmaceuticals industry in China have P/S ratios greater than 3.8x and even P/S higher than 7x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for HARBIN GLORIA PHARMACEUTICALS

What Does HARBIN GLORIA PHARMACEUTICALS' Recent Performance Look Like?

As an illustration, revenue has deteriorated at HARBIN GLORIA PHARMACEUTICALS over the last year, which is not ideal at all. 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 HARBIN GLORIA PHARMACEUTICALS will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like HARBIN GLORIA PHARMACEUTICALS' to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 15%. The last three years don't look nice either as the company has shrunk revenue by 17% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 180% shows it's an unpleasant look.

In light of this, it's understandable that HARBIN GLORIA PHARMACEUTICALS' P/S would sit below the majority of other companies. 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 We Can Learn From HARBIN GLORIA PHARMACEUTICALS' P/S?

The latest share price surge wasn't enough to lift HARBIN GLORIA PHARMACEUTICALS' P/S close to the industry median. 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.

As we suspected, our examination of HARBIN GLORIA PHARMACEUTICALS revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set 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 always need to take note of risks, for example - HARBIN GLORIA PHARMACEUTICALS has 1 warning sign we think you should be aware of.

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

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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.