The Shanghai Junshi Biosciences Co., Ltd. (HKG:1877) share price has done very well over the last month, posting an excellent gain of 32%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 10% over that time.

Even after such a large jump in price, there still wouldn't be many who think Shanghai Junshi Biosciences' price-to-sales (or "P/S") ratio of 8.6x is worth a mention when the median P/S in Hong Kong's Biotechs industry is similar at about 9.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Shanghai Junshi Biosciences' P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Shanghai Junshi Biosciences has been relatively sluggish. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Shanghai Junshi Biosciences' to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 38% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 48% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Turning to the outlook, the next year should generate growth of 31% as estimated by the two analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 85%, which is noticeably more attractive.

With this information, we find it interesting that Shanghai Junshi Biosciences is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Shanghai Junshi Biosciences' P/S

Its shares have lifted substantially and now Shanghai Junshi Biosciences' P/S is back within range of the industry median. 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.

When you consider that Shanghai Junshi Biosciences' revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

It is also worth noting that we have found 1 warning sign for Shanghai Junshi Biosciences that you need to take into consideration.

If you're unsure about the strength of Shanghai Junshi Biosciences' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.