CANbridge Pharmaceuticals Inc.'s (HKG:1228) Share Price Boosted 238% But Its Business Prospects Need A Lift Too

CANbridge Pharmaceuticals Inc. (HKG:1228) shares have continued their recent momentum with a 238% gain in the last month alone. The last month tops off a massive increase of 211% in the last year.

Although its price has surged higher, CANbridge Pharmaceuticals may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 4.5x, since almost half of all companies in the Biotechs industry in Hong Kong have P/S ratios greater than 17.6x and even P/S higher than 43x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

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View our latest analysis for CANbridge Pharmaceuticals

What Does CANbridge Pharmaceuticals' Recent Performance Look Like?

As an illustration, revenue has deteriorated at CANbridge Pharmaceuticals over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on CANbridge Pharmaceuticals will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Is There Any Revenue Growth Forecasted For CANbridge Pharmaceuticals?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like CANbridge Pharmaceuticals' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 17% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 173% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 2,147% shows it's noticeably less attractive.

In light of this, it's understandable that CANbridge Pharmaceuticals' P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What Does CANbridge Pharmaceuticals' P/S Mean For Investors?

Even after such a strong price move, CANbridge Pharmaceuticals' P/S still trails the rest of the industry. 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.

Our examination of CANbridge Pharmaceuticals confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

It is also worth noting that we have found 4 warning signs for CANbridge Pharmaceuticals (3 are significant!) that you need to take into consideration.

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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.