Genscript Biotech Corporation (HKG:1548) shares have had a really impressive month, gaining 43% after a shaky period beforehand.    Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 42% over that time.  

Following the firm bounce in price, given close to half the companies operating in Hong Kong's Life Sciences industry have price-to-sales ratios (or "P/S") below 2.4x, you may consider Genscript Biotech as a stock to potentially avoid with its 3.8x P/S ratio.   Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.  

SEHK:1548 Price to Sales Ratio vs Industry July 30th 2024

What Does Genscript Biotech's P/S Mean For Shareholders?

There hasn't been much to differentiate Genscript Biotech's and the industry's revenue growth lately.   One possibility is that the P/S ratio is high because investors think this modest revenue performance will accelerate.  If not, then existing shareholders may be a little nervous about the viability of the share price.    

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Genscript Biotech.

What Are Revenue Growth Metrics Telling Us About The High P/S?  

The only time you'd be truly comfortable seeing a P/S as high as Genscript Biotech's is when the company's growth is on track to outshine the industry.  

If we review the last year of revenue growth, the company posted a terrific increase of 34%.   The latest three year period has also seen an excellent 115% overall rise in revenue, aided by its short-term performance.  Therefore, it's fair to say the revenue growth recently has been superb for the company.  

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue should grow by 48% per annum over the next three years.  Meanwhile, the rest of the industry is forecast to only expand by 17% each year, which is noticeably less attractive.

With this information, we can see why Genscript Biotech is trading at such a high P/S compared to the industry.  Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.  

What Does Genscript Biotech's P/S Mean For Investors?

The large bounce in Genscript Biotech's shares has lifted the company's P/S handsomely.      While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Genscript Biotech's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S.  It appears that shareholders are confident in the company's future revenues, which is propping up the P/S.  Unless these conditions change, they will continue to provide strong support to the share price.    

Before you settle on your opinion, we've discovered 1 warning sign for Genscript Biotech that you should be aware of.  

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).