China Regenerative Medicine International Limited (HKG:8158) shareholders are no doubt pleased to see that the share price has bounced 42% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 46% in the last twelve months.

Although its price has surged higher, China Regenerative Medicine International may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.1x, considering almost half of all companies in the Biotechs industry in Hong Kong have P/S ratios greater than 12.3x and even P/S higher than 34x aren't out of the ordinary. 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.

Check out our latest analysis for China Regenerative Medicine International

How Has China Regenerative Medicine International Performed Recently?

For example, consider that China Regenerative Medicine International's financial performance has been poor lately as its revenue has been in decline. 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 China Regenerative Medicine International will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

How Is China Regenerative Medicine International's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as China Regenerative Medicine International's is when the company's growth is on track to lag the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 27%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 64% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 82% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that China Regenerative Medicine International's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Final Word

China Regenerative Medicine International's recent share price jump still sees fails to bring its P/S alongside the industry median. 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 suspected, our examination of China Regenerative Medicine International revealed its three-year revenue trends are contributing to its low P/S, given they look worse than 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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 4 warning signs for China Regenerative Medicine International (2 are potentially serious!) that you should be aware of before investing here.

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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