The Zhejiang Shengda Bio-Pharm Co., Ltd. (SHSE:603079) share price has done very well over the last month, posting an excellent gain of 28%. Unfortunately, despite the strong performance over the last month, the full year gain of 7.8% isn't as attractive.

Although its price has surged higher, there still wouldn't be many who think Zhejiang Shengda Bio-Pharm's price-to-sales (or "P/S") ratio of 3.1x is worth a mention when the median P/S in China's Pharmaceuticals industry is similar at about 3.6x. 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 Zhejiang Shengda Bio-Pharm's Recent Performance Look Like?

The recent revenue growth at Zhejiang Shengda Bio-Pharm would have to be considered satisfactory if not spectacular. Perhaps the expectation moving forward is that the revenue growth will track in line with the wider industry for the near term, which has kept the P/S subdued. If not, then at least existing shareholders probably aren't too pessimistic about the future direction of the share price.

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

Zhejiang Shengda Bio-Pharm'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.

If we review the last year of revenue growth, the company posted a worthy increase of 6.2%. Still, revenue has barely risen at all in aggregate from three years ago, 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.

This is in contrast to the rest of the industry, which is expected to grow by 237% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Zhejiang Shengda Bio-Pharm's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Key Takeaway

Zhejiang Shengda Bio-Pharm appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Our examination of Zhejiang Shengda Bio-Pharm revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

Before you settle on your opinion, we've discovered 1 warning sign for Zhejiang Shengda Bio-Pharm that you should be aware of.

If you're unsure about the strength of Zhejiang Shengda Bio-Pharm's 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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