Despite an already strong run, JiangSu WuZhong Pharmaceutical Development Co., Ltd. (SHSE:600200) shares have been powering on, with a gain of 28% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 40% in the last year.

Although its price has surged higher, there still wouldn't be many who think JiangSu WuZhong Pharmaceutical Development's price-to-sales (or "P/S") ratio of 3.7x is worth a mention when the median P/S in China's Pharmaceuticals industry is similar at about 3.1x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

How Has JiangSu WuZhong Pharmaceutical Development Performed Recently?

Recent times haven't been great for JiangSu WuZhong Pharmaceutical Development as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may be a little nervous about the viability of the share price.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like JiangSu WuZhong Pharmaceutical Development's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 27% gain to the company's top line. Still, revenue has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 25% as estimated by the five analysts watching the company. With the industry predicted to deliver 43% growth, the company is positioned for a weaker revenue result.

In light of this, it's curious that JiangSu WuZhong Pharmaceutical Development's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Final Word

JiangSu WuZhong Pharmaceutical Development's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look at the analysts forecasts of JiangSu WuZhong Pharmaceutical Development's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

It is also worth noting that we have found 1 warning sign for JiangSu WuZhong Pharmaceutical Development that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.