Biosino Bio-Technology and Science Incorporation's (HKG:8247) Business And Shares Still Trailing The Industry

Biosino Bio-Technology and Science Incorporation's (HKG:8247) price-to-sales (or "P/S") ratio of 0.4x might make it look like a strong buy right now compared to the Biotechs industry in Hong Kong, where around half of the companies have P/S ratios above 13.2x and even P/S above 55x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Biosino Bio-Technology and Science Incorporation

How Has Biosino Bio-Technology and Science Incorporation Performed Recently?

As an illustration, revenue has deteriorated at Biosino Bio-Technology and Science Incorporation over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

How Is Biosino Bio-Technology and Science Incorporation's Revenue Growth Trending?

In order to justify its P/S ratio, Biosino Bio-Technology and Science Incorporation would need to produce anemic growth that's substantially trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 16%. This means it has also seen a slide in revenue over the longer-term as revenue is down 23% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 95% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we understand why Biosino Bio-Technology and Science Incorporation's P/S is lower than most of its industry peers. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Final Word

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Biosino Bio-Technology and Science Incorporation revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Biosino Bio-Technology and Science Incorporation (1 is a bit concerning!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Biosino Bio-Technology and Science Incorporation, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.