There's Reason For Concern Over Tianjin TEDA Biomedical Engineering Company Limited's (HKG:8189) Massive 73% Price Jump

Simply Wall St · 10/17 22:08

Despite an already strong run, Tianjin TEDA Biomedical Engineering Company Limited (HKG:8189) shares have been powering on, with a gain of 73% in the last thirty days. The annual gain comes to 116% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, there still wouldn't be many who think Tianjin TEDA Biomedical Engineering's price-to-sales (or "P/S") ratio of 0.8x is worth a mention when the median P/S in Hong Kong's Chemicals industry is similar at about 0.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Tianjin TEDA Biomedical Engineering

ps-multiple-vs-industry
SEHK:8189 Price to Sales Ratio vs Industry October 17th 2024

How Has Tianjin TEDA Biomedical Engineering Performed Recently?

Revenue has risen firmly for Tianjin TEDA Biomedical Engineering recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Tianjin TEDA Biomedical Engineering 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 Tianjin TEDA Biomedical Engineering will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Tianjin TEDA Biomedical Engineering?

Tianjin TEDA Biomedical Engineering's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 10%. However, this wasn't enough as the latest three year period has seen an unpleasant 5.0% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 6.0% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Tianjin TEDA Biomedical Engineering's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Tianjin TEDA Biomedical Engineering's P/S?

Its shares have lifted substantially and now Tianjin TEDA Biomedical Engineering's P/S is back within range of the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

The fact that Tianjin TEDA Biomedical Engineering currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Tianjin TEDA Biomedical Engineering (1 is a bit concerning!) that you should be aware of before investing here.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).