RemeGen Co., Ltd. (HKG:9995) shareholders that were waiting for something to happen have been dealt a blow with a 48% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 71% share price decline.

Since its price has dipped substantially, RemeGen's price-to-sales (or "P/S") ratio of 5.6x might make it look like a buy right now compared to the Biotechs industry in Hong Kong, where around half of the companies have P/S ratios above 9.1x and even P/S above 22x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does RemeGen's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, RemeGen has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Is There Any Revenue Growth Forecasted For RemeGen?

RemeGen's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered an exceptional 58% gain to the company's top line. 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.

Looking ahead now, revenue is anticipated to climb by 43% per year during the coming three years according to the analysts following the company. With the industry predicted to deliver 51% growth per year, the company is positioned for a weaker revenue result.

With this information, we can see why RemeGen 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.

The Key Takeaway

RemeGen'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.

As expected, our analysis of RemeGen's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware RemeGen is showing 3 warning signs in our investment analysis, and 1 of those is potentially serious.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

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