Yifan Pharmaceutical Co., Ltd. (SZSE:002019) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 9.1% over the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Yifan Pharmaceutical's price-to-sales (or "P/S") ratio of 3.8x right now seems quite "middle-of-the-road" compared to the Pharmaceuticals industry in China, where the median P/S ratio is around 3.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Yifan Pharmaceutical's Recent Performance Look Like?

Recent times haven't been great for Yifan Pharmaceutical as its revenue has been rising slower than most other companies. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

What Are Revenue Growth Metrics Telling Us About The P/S?

The only time you'd be comfortable seeing a P/S like Yifan Pharmaceutical's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 15% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 16% drop in revenue in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 26% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 19%, which is noticeably less attractive.

In light of this, it's curious that Yifan Pharmaceutical's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What Does Yifan Pharmaceutical's P/S Mean For Investors?

Yifan Pharmaceutical's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Despite enticing revenue growth figures that outpace the industry, Yifan Pharmaceutical's P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Yifan Pharmaceutical with six simple checks on some of these key factors.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.