Unfortunately for some shareholders, the Chengdu Olymvax Biopharmaceuticals Inc. (SHSE:688319) share price has dived 31% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 39% in that time.

Even after such a large drop in price, given close to half the companies operating in China's Biotechs industry have price-to-sales ratios (or "P/S") below 6.7x, you may still consider Chengdu Olymvax Biopharmaceuticals as a stock to potentially avoid with its 8.3x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Chengdu Olymvax Biopharmaceuticals

How Has Chengdu Olymvax Biopharmaceuticals Performed Recently?

Chengdu Olymvax Biopharmaceuticals could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. However, if this isn't the case, investors might get caught out paying too much for the stock.

Do Revenue Forecasts Match The High P/S Ratio?

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

Retrospectively, the last year delivered a frustrating 7.7% 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 65% 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.

Turning to the outlook, the next year should generate growth of 56% as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 825%, which is noticeably more attractive.

With this in consideration, we believe it doesn't make sense that Chengdu Olymvax Biopharmaceuticals' P/S is outpacing its industry peers. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Final Word

There's still some elevation in Chengdu Olymvax Biopharmaceuticals' P/S, even if the same can't be said for its share price recently. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It comes as a surprise to see Chengdu Olymvax Biopharmaceuticals trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It is also worth noting that we have found 3 warning signs for Chengdu Olymvax Biopharmaceuticals that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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