With a price-to-sales (or "P/S") ratio of 23.3x Keymed Biosciences Inc. (HKG:2162) may be sending very bearish signals at the moment, given that almost half of all the Biotechs companies in Hong Kong have P/S ratios under 11.8x and even P/S lower than 2x 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 lofty.

How Has Keymed Biosciences Performed Recently?

Keymed Biosciences certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

How Is Keymed Biosciences' Revenue Growth Trending?

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

Retrospectively, the last year delivered an explosive gain to the company's top line. Although, its longer-term performance hasn't been anywhere near as strong with three-year revenue growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the ten analysts covering the company suggest revenue should grow by 52% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 121% each year, which is noticeably more attractive.

With this information, we find it concerning that Keymed Biosciences is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. 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.

What Does Keymed Biosciences' P/S Mean For Investors?

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.

It comes as a surprise to see Keymed Biosciences 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. At these price levels, investors should remain cautious, particularly if things don't improve.

You should always think about risks. Case in point, we've spotted 3 warning signs for Keymed Biosciences you should be aware of, and 1 of them makes us a bit uncomfortable.

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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