The China NT Pharma Group Company Limited (HKG:1011) share price has fared very poorly over the last month, falling by a substantial 26%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 44% share price drop.
Following the heavy fall in price, it would be understandable if you think China NT Pharma Group is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.8x, considering almost half the companies in Hong Kong's Pharmaceuticals industry have P/S ratios above 1.4x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
View our latest analysis for China NT Pharma Group
How China NT Pharma Group Has Been Performing
For instance, China NT Pharma Group's receding revenue in recent times would have to be some food for thought. 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 China NT Pharma Group will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.
How Is China NT Pharma Group's Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as low as China NT Pharma Group's is when the company's growth is on track to lag 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 28%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 14% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.
Comparing that to the industry, which is predicted to deliver 19% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.
With this information, we can see why China NT Pharma Group is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.
The Final Word
China NT Pharma Group's P/S has taken a dip along with its share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
As we suspected, our examination of China NT Pharma Group revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with China NT Pharma Group (at least 1 which makes us a bit uncomfortable), and understanding these should be part of your investment process.
If these risks are making you reconsider your opinion on China NT Pharma Group, 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.