Shandong Sito Bio-technology Co., Ltd. (SZSE:300583) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 19% in the last twelve months.

In spite of the firm bounce in price, there still wouldn't be many who think Shandong Sito Bio-technology's price-to-sales (or "P/S") ratio of 2.4x is worth a mention when the median P/S in China's Pharmaceuticals industry is similar at about 2.9x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

What Does Shandong Sito Bio-technology's P/S Mean For Shareholders?

Shandong Sito Bio-technology could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Is There Some Revenue Growth Forecasted For Shandong Sito Bio-technology?

Shandong Sito Bio-technology's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with 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 15%. Regardless, revenue has managed to lift by a handy 23% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 21% over the next year. With the industry only predicted to deliver 17%, the company is positioned for a stronger revenue result.

In light of this, it's curious that Shandong Sito Bio-technology's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Shandong Sito Bio-technology's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Looking at Shandong Sito Bio-technology's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Shandong Sito Bio-technology (2 are potentially serious!) that you should be aware of before investing here.

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.

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