Investors Don't See Light At End Of Viva Biotech Holdings' (HKG:1873) Tunnel

Viva Biotech Holdings' (HKG:1873) price-to-sales (or "P/S") ratio of 0.6x might make it look like a strong buy right now compared to the Life Sciences industry in Hong Kong, where around half of the companies have P/S ratios above 2.8x and even P/S above 5x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Viva Biotech Holdings

What Does Viva Biotech Holdings' P/S Mean For Shareholders?

For example, consider that Viva Biotech Holdings' financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Viva Biotech 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, Viva Biotech Holdings would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a frustrating 17% decrease to the company's top line. Still, the latest three year period has seen an excellent 31% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

This is in contrast to the rest of the industry, which is expected to grow by 44% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Viva Biotech Holdings' 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 Viva Biotech Holdings' P/S?

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 Viva Biotech Holdings revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Viva Biotech Holdings (1 is a bit unpleasant!) that you should be aware of before investing here.

If you're unsure about the strength of Viva Biotech Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.