Subdued Growth No Barrier To Tianjin TEDA Biomedical Engineering Company Limited (HKG:8189) With Shares Advancing 55%

Despite an already strong run, Tianjin TEDA Biomedical Engineering Company Limited (HKG:8189) shares have been powering on, with a gain of 55% in the last thirty days. The last 30 days were the cherry on top of the stock's 329% gain in the last year, which is nothing short of spectacular.

Following the firm bounce in price, you could be forgiven for thinking Tianjin TEDA Biomedical Engineering is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.8x, considering almost half the companies in Hong Kong's Chemicals industry have P/S ratios below 0.4x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for Tianjin TEDA Biomedical Engineering

What Does Tianjin TEDA Biomedical Engineering's P/S Mean For Shareholders?

Tianjin TEDA Biomedical Engineering has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S ratio is high because investors think this respectable revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is Tianjin TEDA Biomedical Engineering's Revenue Growth Trending?

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

Retrospectively, the last year delivered a decent 10% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 5.0% overall drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 5.4% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that Tianjin TEDA Biomedical Engineering is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does Tianjin TEDA Biomedical Engineering's P/S Mean For Investors?

Tianjin TEDA Biomedical Engineering shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

We've established that Tianjin TEDA Biomedical Engineering currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

It is also worth noting that we have found 2 warning signs for Tianjin TEDA Biomedical Engineering (1 makes us a bit uncomfortable!) that you need to take into consideration.

If you're unsure about the strength of Tianjin TEDA Biomedical Engineering'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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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.