The Sichuan Hezong Medicine Easy-to-buy Pharmaceutical Co., Ltd. (SZSE:300937) share price has fared very poorly over the last month, falling by a substantial 26%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 22% share price drop.

Although its price has dipped substantially, there still wouldn't be many who think Sichuan Hezong Medicine Easy-to-buy Pharmaceutical's price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S in China's Consumer Retailing industry is similar at about 0.9x. 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 Sichuan Hezong Medicine Easy-to-buy Pharmaceutical's Recent Performance Look Like?

The revenue growth achieved at Sichuan Hezong Medicine Easy-to-buy Pharmaceutical over the last year would be more than acceptable for most companies. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Sichuan Hezong Medicine Easy-to-buy Pharmaceutical will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

How Is Sichuan Hezong Medicine Easy-to-buy Pharmaceutical's Revenue Growth Trending?

In order to justify its P/S ratio, Sichuan Hezong Medicine Easy-to-buy Pharmaceutical would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 24%. The strong recent performance means it was also able to grow revenue by 64% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

It's interesting to note that the rest of the industry is similarly expected to grow by 16% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this in consideration, it's clear to see why Sichuan Hezong Medicine Easy-to-buy Pharmaceutical's P/S matches up closely to its industry peers. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

The Final Word

With its share price dropping off a cliff, the P/S for Sichuan Hezong Medicine Easy-to-buy Pharmaceutical looks to be in line with the rest of the Consumer Retailing industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we've seen, Sichuan Hezong Medicine Easy-to-buy Pharmaceutical's three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for Sichuan Hezong Medicine Easy-to-buy Pharmaceutical (1 can't be ignored!) that we have uncovered.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.