What Sihuan Pharmaceutical Holdings Group Ltd.'s (HKG:460) 29% Share Price Gain Is Not Telling You

Simply Wall St · 05/07 23:51

The Sihuan Pharmaceutical Holdings Group Ltd. (HKG:460) share price has done very well over the last month, posting an excellent gain of 29%. Looking further back, the 22% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Since its price has surged higher, when almost half of the companies in Hong Kong's Pharmaceuticals industry have price-to-sales ratios (or "P/S") below 1.5x, you may consider Sihuan Pharmaceutical Holdings Group as a stock probably not worth researching with its 3.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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Check out our latest analysis for Sihuan Pharmaceutical Holdings Group

ps-multiple-vs-industry
SEHK:460 Price to Sales Ratio vs Industry May 7th 2025

How Has Sihuan Pharmaceutical Holdings Group Performed Recently?

It looks like revenue growth has deserted Sihuan Pharmaceutical Holdings Group recently, which is not something to boast about. It might be that many are expecting an improvement to the uninspiring revenue performance over the coming period, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Sihuan Pharmaceutical Holdings Group will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Sihuan Pharmaceutical Holdings Group?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Sihuan Pharmaceutical Holdings Group's to be considered reasonable.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. This isn't what shareholders were looking for as it means they've been left with a 37% decline in revenue over the last three years in total. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 11% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Sihuan Pharmaceutical Holdings Group is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very 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.

The Bottom Line On Sihuan Pharmaceutical Holdings Group's P/S

Sihuan Pharmaceutical Holdings Group's P/S is on the rise since its shares have risen strongly. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Sihuan Pharmaceutical Holdings Group currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Sihuan Pharmaceutical Holdings Group with six simple checks.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.