The Hunan Dajiaweikang Pharmaceutical Industry Co.,Ltd (SZSE:301126) 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 40% share price drop.

Although its price has dipped substantially, Hunan Dajiaweikang Pharmaceutical IndustryLtd's price-to-sales (or "P/S") ratio of 0.5x might still make it look like a buy right now compared to the Healthcare industry in China, where around half of the companies have P/S ratios above 1.8x and even P/S above 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does Hunan Dajiaweikang Pharmaceutical IndustryLtd's Recent Performance Look Like?

Recent times have been quite advantageous for Hunan Dajiaweikang Pharmaceutical IndustryLtd as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. 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.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Hunan Dajiaweikang Pharmaceutical IndustryLtd would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 30% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 64% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 19% shows it's about the same on an annualised basis.

With this in consideration, we find it intriguing that Hunan Dajiaweikang Pharmaceutical IndustryLtd's P/S falls short of its industry peers. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

What Does Hunan Dajiaweikang Pharmaceutical IndustryLtd's P/S Mean For Investors?

Hunan Dajiaweikang Pharmaceutical IndustryLtd's P/S has taken a dip along with its share price. 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.

Our examination of Hunan Dajiaweikang Pharmaceutical IndustryLtd revealed its three-year revenue trends looking similar to current industry expectations hasn't given the P/S the boost we expected, given that it's lower than the wider industry P/S, When we see industry-like revenue growth but a lower than expected P/S, we assume potential risks are what might be placing downward pressure on the share price. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

Plus, you should also learn about these 4 warning signs we've spotted with Hunan Dajiaweikang Pharmaceutical IndustryLtd (including 3 which shouldn't be ignored).

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

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