CK Life Sciences Int'l., (Holdings) Inc. (HKG:775) shares have continued their recent momentum with a 29% gain in the last month alone. The annual gain comes to 103% following the latest surge, making investors sit up and take notice.
Even after such a large jump in price, CK Life Sciences Int'l. (Holdings) may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.2x, since almost half of all companies in the Biotechs industry in Hong Kong have P/S ratios greater than 8.7x and even P/S higher than 26x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.
Check out our latest analysis for CK Life Sciences Int'l. (Holdings)
How Has CK Life Sciences Int'l. (Holdings) Performed Recently?
The recent revenue growth at CK Life Sciences Int'l. (Holdings) would have to be considered satisfactory if not spectacular. Perhaps the market believes the recent revenue performance might fall short of industry figures in the near future, leading to a reduced P/S. Those who are bullish on CK Life Sciences Int'l. (Holdings) will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on CK Life Sciences Int'l. (Holdings) will help you shine a light on its historical performance.Do Revenue Forecasts Match The Low P/S Ratio?
In order to justify its P/S ratio, CK Life Sciences Int'l. (Holdings) would need to produce anemic growth that's substantially trailing the industry.
Retrospectively, the last year delivered a decent 3.8% gain to the company's revenues. However, due to its less than impressive performance prior to this period, revenue growth is practically non-existent over the last three years overall. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.
Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 58% shows it's noticeably less attractive.
In light of this, it's understandable that CK Life Sciences Int'l. (Holdings)'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.
What We Can Learn From CK Life Sciences Int'l. (Holdings)'s P/S?
Shares in CK Life Sciences Int'l. (Holdings) have risen appreciably however, its P/S is still subdued. 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.
Our examination of CK Life Sciences Int'l. (Holdings) confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of 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. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.
And what about other risks? Every company has them, and we've spotted 4 warning signs for CK Life Sciences Int'l. (Holdings) (of which 2 are a bit unpleasant!) you should know about.
If these risks are making you reconsider your opinion on CK Life Sciences Int'l. (Holdings), explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.